June CPI: Consumer Prices Tap the Brakes, Fed-Hike Fears Ease

Barchart · 3d ago

The air was let out of the inflation balloon in June, with the rate of growth in consumer prices dropped by the fastest level in six years—easing some concerns that the Federal Reserve would soon raise its benchmark interest rate.

The U.S. Bureau of Labor Statistics said Tuesday that June's consumer price index (CPI), which measures the change in prices on a variety of consumer goods and services, rose by a seasonally adjusted 3.5% year-over-year—well below estimates for 3.8% and a steep decline from May's 4.2% headline figure. The May reading was the hottest since May 2023. On a month-over-month basis, prices grew by 0.4%, which was above expectations for 0.2% but still a little slower than May's 0.5%.

"Core" CPI—a measure of inflation that excludes food and energy costs (factors that are more volatile than the other prices tracked by the Labor Department)—was also plenty softer than expected. Core inflation came in flat MoM and up 2.6% YoY versus expectations of 0.2% and 2.9% growth, respectively.

Stock markets bounced Tuesday morning, with Wall Street believing the report will stay the Fed's hand at its next rate-setting meeting. But the reprieve on consumers might only be temporary.

“The well-behaved CPI print likely lowers pressure on the Fed to hike soon, but the reignition of hostilities in Iran means the prospect of hikes is far from over," says Kay Haigh, global head and CIO of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management. "Concerns over energy supply through the Strait of Hormuz raises risks to the forward-looking inflation outlook, which could force the FOMC’s hand eventually. Although a path remains for rates to stay unchanged this year, the reescalation of the conflict has narrowed it.”

With core measures suggesting more limited price increases and much of the upside coming from oil directly (energy) or indirectly (airfares), today’s release suggests that inflationary pressures stemming from the oil price shock have remained manageable for the U.S. economy so far," says Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments.

Here's a quick look at June's key CPI figures:

MoM CPI: +0.4% (estimate: +0.2%)
YoY CPI: +3.5% (estimate: +3.8%)
MoM Core CPI: Flat (estimate: +0.2%)
YoY Core CPI: +2.6% (estimate: +2.9%)

This report will be updated.

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June CPI: Consumer Prices Tap the Brakes, Fed-Hike Fears Ease

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