Inflation likely slowed in June amid falling car prices and a moderation in rent growth. That’s good news for the Federal Reserve—though likely not enough to keep it from hiking interest rates again later this month.
Economists forecast the consumer price index climbed at a 3.1% annual pace in June, consensus expectations from FactSet show, marking a significant decrease from the 4% pace reached in May and bringing annual headline inflation down to its slowest pace since March 2021.
Core CPI, which excludes the volatile food and energy indexes and is considered a better gauge of underlying price growth, is expected to tell a similar story. Economists expect core inflation to have climbed 0.3% in June, down from May’s 0.4% jump, to slow to a 5% annual pace, down from the 5.3% annual pace notched in May.
The June CPI data will be especially closely watched because it will be the only set of inflation figures released before the Fed’s policy-making committee meets again on July 25-26. At that point, officials will be debating whether to raise interest rates for an 11th time this tightening cycle or to hold them steady at the current 5-5.25% level.
Many economists are forecasting that an inflation print for June that shows cooling in line with expectations won’t likely be enough to sway the Fed against an 11th rate hike that is seen as all but locked in. June’s employment data, which was released on Friday, continued to show a tight labor market, and a bevy of Fed officials have been saying publicly in recent weeks that they believe the central bank still has more work to do before it is done tightening monetary policy.
After July, however, the rate-hike path becomes less clear.
“A relatively cool June CPI report would be unlikely to prevent the Fed from hiking later this month,” wrote a team of
BNP Paribas
economists led by Carl Riccadonna. “But further relatively benign readings in ensuing months paired with expected weakening in the labor market should tamp down the urgency to tighten beyond July.”
What will matter most to the Fed in the June data is what categories are causing the slowdown in headline price growth. Moderating rents are likely to bring the headline figure down somewhat, though economists have long expected deceleration in that category. Used car prices, which spiked in the previous two months, are expected to have dropped significantly in June, leading to a mild decline in core goods prices.
Core services excluding housing, on the other hand—a category that has become a primary focus for the Fed—could show considerable strength.
Citi
economists estimate that some transportation, recreation and communication services could all see a mild rebound in June, which could amount to a bigger month-over-month jump in non-housing services than in each of the past three months.
The Labor Department will release the CPI data at 8:30 a.m.
Write to Megan Cassella at [email protected]
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