STIR: Initial PPI Reaction Fades A Little, PCE Readthrough Not As Hawkish

• Separate Blocks:
• +9,000 TUU5 103-21.38, buy through 103-20.88 post time offer at 0834:00ET, DV01 $340,000
• -4,000 UXYU5 112-22, sell through 112-23 post time bid at 0835:23ET, DV01 $345,000

The softer-than-expected core reading in June  (0.23% M/M vs 0.29% MNI median, 0.13% prior) comes with higher core goods prices than expected (0.20% M/M vs 0.19% MNI median, -0.04% prior), but that's outweighed by core services slightly on the light side (0.25% M/M vs 0.27% MNI median, 0.17% prior).  

• First on services. As noted, supercore was overall on the soft side at 0.21% (0.24% MNI median, 0.06% prior): lodging prices were significantly softer than expected (-2.9% vs -0.3% median, -0.1% prior), with auto insurance also on the soft side (0.1% vs 0.7% median, 0.7% prior). Airfares were higher than expected (-0.1% vs 0.5% median, -2.7% prior) but this isn't included in PCE; recreation services ticked up to +0.2% M/M from -0.1% (no consensus).
• OER was largely in line (0.30% vs 0.29% median, 0.27% prior), but rents picked up less than expected (0.21% vs 0.26% median).

Supercore reasonably close to average analyst estimates despite a surprisingly heavy drag from lodging away from home (-2.9% M/M). See the above table for how this lodging line stands out vs expectations. 

• Core services excl OER & primary rents ('supercore'): 0.212% M/M after 0.061%. Latest 3mth av of 0.161%
• Core services excl all shelter (i.e. also stripping out lodging): 0.361% M/M after 0.056%. Latest 3mth av of 0.189%
• Limited analyst estimates for ex OER & rents had averaged 0.23% M/M, ranging from 0.10 to 0.32