Topline
Inflation in June fell to its lowest level in more than two years as the Federal Reserve’s war against price increases continue to bear fruit, though some data indicates inflation is far more stubborn than it may appear.
Key Facts
The Labor Department’s consumer price index was 3% higher last month than it was in June 2022, according to government data released Wednesday morning, a massive decline from last June’s 9.1% inflation and jumping just 0.2% from May.
That comes in just below consensus economist estimates of 3.1% and 0.3% annualized and month-over-month CPI increases, respectively.
The largest contributor to rising prices was rent, which is up 8.3% over the last 12 months, while energy prices (down 16.7% over the last year) are by far the biggest component driving headline inflation down, with gas down a whopping 27% compared to a year ago.
Yet, core inflation, which measures the CPI minus the erratic food and energy categories, stood at 4.8% on an annual basis last month, far above the Fed’s long-term 2% inflation target but well below economists’ 5% projection.
Stock futures climbed immediately after the CPI release as investors pounce on any evidence that inflation is cooling.
Key Background
Inflation peaked at 9.1% last June as prices spiked dramatically as commodity prices spiked amid Russia’s invasion of Ukraine and final good prices remained elevated as pandemic-induced supply chain snags lingered. To combat this, the Fed raised interest rates to their highest level in 16 years, sending the U.S. economy into a possible recession as higher borrowing costs drove down corporate bottom lines and led to a glut of high-profile layoffs. Even still, the labor market remains resilient as unemployment stays steady at 3.6%, frustrating the Fed considering unemployment historically needs to rise for inflation to come down.
Crucial Quote
“Markets have rallied in part on the idea of a continued drop in core inflation, but it really hasn’t happened,” Sevens Report analyst Tom Essaye wrote in a Wednesday note previewing the CPI release. “That needs to change, starting today, and the sooner Core CPI gets below 5.0% y/y, the better for both stocks and bonds.”
Inflation Fell To 4% In May—Lowest Reading In More Than Two Years (Forbes)
Fed Officials Expect More Rate Hikes Ahead—And Still Foresee A Recession This Year (Forbes)
U.S. Added Less Than Expected 209,000 Jobs Last Month As Labor Market Cools—Slightly (Forbes)
Read the full article here
