Announced this morning, the Consumer Price Index (CPI) decreased -0.4% in June, a larger decrease than expected, and sizably lower than the increase in the previous month. On an annual basis, it grew 3.5%, also less than expected and lower than the previous month’s annual increase. The core rate, which excludes prices for food and energy, was flat in May, which was less than expected. The core rate grew 2.6% on an annual basis, also less than expected and three-tenths less than the previous month’s annual increase.
Looking at the individual categories, monthly prices for Utility (piped) gas service, up 0.5%, were relatively strong while monthly prices for Gasoline, down -9.7%, and Fuel Oil, down -9.2%, were relatively weak. Prices for Shelter were up 0.1%, two-tenths less than the previous month’s increase.
Overall, a bit of a reprieve on inflation data as both headline and core CPI were lower than expected. Headline CPI fell in June primarily due to lower gasoline prices given developments in the conflict with Iran. Meanwhile, core CPI was flat in the month as prices for categories such as apparel and transportation services fell; prices for shelter were less than the previous month as well. The annual rate for the core measure has moved back to where it was earlier in the year.
New Fed chair Kevin Warsh, who is speaking to lawmakers on Capitol Hill today, has emphasized the Fed’s commitment to price stability in recent speeches. Should inflation not move lower on its own, the Fed may need to tighten policy to meet this commitment. Today’s report is helpful in that regard, but ongoing developments in Iran need to be closely monitored given the effect on oil prices. As a result, how inflation moves in the coming weeks will be key for consumers and the economy as we move into the quarterly earnings season.
In all, the 10-year US Treasury yield ticks lower following the report and equity futures are mixed as we head into the market open.
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