CICC: U.S. inflation has entered a "shift period."

CICC released a research report stating that the U.S. CPI adjusted for July rose by 0.1% month-on-month and 3.4% year-on-year, with core inflation rising by 0.2% month-on-month and 2.5% year-on-year, all of which met market expectations. Energy prices continued to decline, but international oil prices have risen again since August, increasing future energy price uncertainty. In terms of core inflation, goods showed strength while services remained weak, particularly with the prices of information technology products such as computers and software continuing to rise, reflecting a supply-demand mismatch brought about by the expansion of AI capital expenditures that is gradually being transmitted to consumer levels. CICC believes that U.S. inflation may have entered a new phase, with its DRIVES shifting from supply shocks caused by tariffs and oil prices to demand expansion driven by AI investment, potentially prolonging the duration of inflation. CICC's main viewpoints are as follows: Overall CPI inflation rose by 0.1% month-on-month, with energy prices continuing the decline seen in the previous month. Energy prices adjusted for July fell by 1.5% month-on-month, with gasoline and fuel prices dropping by 2.9% and 1.7%, respectively, providing a buffer against inflationary pressures. Despite a rise in international oil prices in July due to the situation in the Strait of Hormuz, the average was still lower than in June, thus not adding inflation pressure month-on-month. However, entering August, international oil prices showed a trend of fluctuating increases, and if this trend continues or oil prices remain unchanged, gasoline and fuel prices are expected to rise month-on-month. Food prices in July were generally mild, rising by 0.1% month-on-month and 3.0% year-on-year, with household food prices slightly decreasing by 0.1% and prices for dining out rising by 0.3%. Core inflation increased by 0.2% month-on-month, structurally showing strength in goods and weakness in services. Core goods prices rose by 0.2%, the highest since the beginning of the year. New car prices rose by 0.1%, and prices for used cars and trucks increased by 0.4%, reflecting a rebound in previously suppressed demand for car sales and usage as oil prices declined. Amid the AI boom, prices for information technology goods rose by 1.4% month-on-month, with prices for computers, peripherals, and smart home assistants rising by 3.5%, the largest increase since 2021; prices for computer software and accessories rose by 0.5%, up 21.2% year-on-year, the highest growth recorded. This indicates that strong AI capital expenditures are causing a supply-demand mismatch, which continues to exert upward pressure on consumer goods prices. In contrast, rent prices rose by 0.1% month-on-month, remaining flat compared to last month, with hotel accommodation prices within lodging declining by 3.3%, which was a major drag. Non-rent core service inflation increased by 0.2%, with overall mild results. Medical services (0.6%) and education and communication services (0.5%) saw slight month-on-month increases, while airfares rose by 2.2%, although the softening of items such as motor vehicle insurance (-0.3%) limited the upward movement of service inflation. Overall, CICC believes that U.S. inflation may have entered a new phase, with its DRIVES gradually shifting from the supply side to the demand side. Over the past year, U.S. inflation has primarily been influenced by two types of supply shocks: first, the increase in import costs caused by tariffs, and second, rising oil prices driving up energy and transportation costs. Among these, the impact of tariffs is primarily concentrated in 2025, and as the base effect gradually fades, its marginal impact on inflation is weakening. The oil price shock began in March of this year, and although it has somewhat eased recently, geopolitical risks have not been completely eliminated. Since August, international oil prices have rebounded again, indicating that energy prices may still disrupt inflation. Meanwhile, a new source of inflation is gradually emergingdemand shocks stemming from AI capital expenditures. Since 2025, U.S. tech companies have been continuously expanding AI investments, leading to rapidly increasing demand for hardware such as chips, storage, high-end servers, and networking equipment, which has caused substantial price increases for these products and is gradually transmitted to the prices of electronic consumer goods and computer software products. Unlike the external supply shocks from tariffs and oil prices, this type of inflation essentially arises from the expansion of investment demand. As long as AI capital expenditures remain high and the supply-demand contradiction is not alleviated, inflationary pressure may persist. For the Federal Reserve, this inflation data has somewhat alleviated the pressure for short-term interest rate hikes, and some officials who previously held an open attitude towards rate hikes (such as Waller) may choose to continue observing. However, the Federal Reserve under Waller has weakened forward guidance, meaning that if there are strong employment or inflation data in the future, market expectations for interest rate hikes may be quickly reignited. From a longer-term perspective, if the main source of future inflation shifts from supply shocks to demand expansion, then the duration of inflation may also correspondingly extend. Compared to supply-driven inflation, demand-driven inflation requires more attention from policymakers.