All eyes were on today’s inflation report released by the U.S. Labor Department. Economists had forecasted inflation to rise month-over-month by 0.3% in June. Nevertheless, inflation rose by 0.2%, its lowest increase since August 2021. On an annualized basis, inflation was expected to increase by 3.1%, but it also came in lower than forecasts at 3%, before seasonal adjustments. This was the smallest yearly increase since March 2021. Excluding volatile food and energy prices, core CPI went up by 0.2% month-over-month in June and by 4.8% on an annualized basis, lower than economists’ estimates.
Home prices continued to be the largest contributor to the monthly inflation index, making up more than 70% of the increase, and rose by 0.4% in June on a seasonally adjusted basis as compared to 0.6% in May. Food prices went up at a slower rate of 0.1% in June as compared to a gain of 0.2% in May. The energy index gained by 0.6% month-over-month while declining 16.7% on an annualized basis.
The CPI index is considered a harbinger for investors of how the Federal Reserve will move interest rates going forward. Even as inflation cools down, it still shows that the Fed has some more work to do to bring it down to its target of 2%.
Indeed, according to the CME FedWatch tool, traders have assigned a 92.4% probability that the Fed is likely to raise its interest rates by 25 basis points at its July meeting with interest rates likely to be in the range of 5.25% to 5.50%.
