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(Bloomberg) — Forecasters expect a monthly report on US consumer prices to show the smallest back-to-back increases in underlying inflation since last summer, adding to the case for a Federal Reserve interest-rate cut in September.

The figures, to be published Thursday by the Bureau of Labor Statistics, will probably show a key gauge of prices excluding food and energy advanced just 0.2% in June for the second month in a row, according to the median estimate in a Bloomberg survey. The broader consumer price index is seen posting a smaller 0.1% increase, thanks in part to lower gas prices.

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Such an outcome would help solidify expectations in financial markets that the Fed will begin cutting rates at its September policy meeting, marking the first step in unwinding its most aggressive tightening campaign since the early 1980s.

“Bloomberg Economics expects June’s CPI report to be a ‘really good’ reading, to borrow Fed Chair Jerome Powell’s characterization of recent inflation prints,” Bloomberg economists Anna Wong, Chris Collins and Stuart Paul said Wednesday in a preview of the numbers. “That should set the stage for the Fed to start cutting rates in September.”

Here are the key components to watch in the report:

NYC Rents

June probably marked the beginning of an overdue moderation in rent increases, which have been keeping overall monthly inflation readings elevated in 2024. A measure known as owners’ equivalent rent, which has a 26.6% weight in the CPI, has risen 0.41% per month so far this year on average, versus 0.27% per month in 2019.

That deceleration would already have turned up in the May data if not for an unusual surge in the New York City metro area, which saw a 1.8% jump in OER — the biggest in 30 years. And because NYC is the largest metro area in the country, that move alone boosted the national OER reading in May by about eight basis points, according to Omair Sharif, president of Inflation Insights.

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Steve Reed, an economist at the BLS who works on the CPI numbers, attributed the outsize reading to problems they had collecting quotes. He also pointed out that the June data will draw on a different sample of units, which rotates every six months.

“A small number of quotes that we did collect in certain areas wound up sort of having magnified importance, because there were quite a few quotes that we didn’t collect,” Reed said. “Essentially it represents noise.”

Used Cars

Following a 16.2% increase between February 2020 and May 2023, core goods prices have posted declines in 11 of the past 12 months. Many forecasters expect them to edge lower again in June, led by used cars—one of the biggest items in the core goods basket.

While most measures of wholesale used car prices that economists use as leading indicators fell in June, a cyberattack affecting dealerships across the country has raised uncertainty about what the CPI numbers may show. Any outsize move would probably be seen as likely to reverse in July.

“If the attack led sales to shift from new car dealerships to used alternatives, this could keep upward pressure on used car prices temporarily despite falling wholesale values,” Citi economists Veronica Clark and Andrew Hollenhorst said in a July 8 note.

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“On the other hand, car prices (for both new and used) typically rise in June, with negative seasonal factors offsetting this increase,” they said. “If the attack made dealers unable to update prices (not raise them in line with seasonal patterns), this may result in downside risks to seasonally adjusted prices.”

Auto Insurance

Services prices excluding food, energy and rents—a grouping Fed officials watch closely—fell in May for the first time since 2021, thanks in part to a drop in motor vehicle insurance costs.

Auto insurance has been one of the hottest components of the CPI this year, and many forecasters expect it resumed its upward trajectory in June.

“We think it would be a mistake to make a trend from the last print,” Morgan Stanley economists led by Diego Anzoategui said in a July 5 note.

“Even though we expect disinflation ahead as insurance companies normalize profits, we haven’t seen a meaningful slowdown in companies’ rate filings. Companies are still asking regulators to increase premiums meaningfully.”

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