Unexpected Easing of US Inflation
US inflation has defied expectations, slowing down in June. Both headline and core inflation rose at a pace below estimates, thereby potentially strengthening the argument for the Federal Reserve to reevaluate its current monetary tightening strategy. This shift might occur after the anticipated interest rate hike in the upcoming policy meeting.
Unpacking the Consumer Price Index (CPI) Report
The Bureau of Labor Statistics closely monitors the consumer price index (CPI), which recorded a 3.0% annual increase in June. This is a decrease from the 4.0% annual increase in May, and lower than the predicted 3.1%. This is the lowest level seen in over two years, representing a significant deceleration from the 9.1% peak reached the previous June.
A Closer Look at Month-on-Month CPI Readings
In terms of month-on-month readings, the CPI saw a growth of 0.2%, a slight increase from 0.1% in the previous month. However, this is still below the forecasted growth of 0.3%.
Core CPI Figures Experience a Cool Down
Meanwhile, the core CPI—which excludes highly fluctuating items such as food and energy—decreased to 4.8% yearly and 0.2% monthly. Analysts initially predicted both figures to decline to 5.0% and 0.3% respectively.
Speculation on Future Federal Reserve Actions
Despite the headline inflation rate nearing the Fed's 2% target, persistent core figures are fueling speculation that the central bank may raise interest rates later in July. The Fed paused its interest rate hiking cycle in June. According to the Fed Rate Monitor Tool by Investing.com, there is an over 88% chance that the central bank will introduce a quarter-point increase in borrowing costs at its July meeting.