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Soft-landing, anyone? This morning’s much-anticipated Consumer Price Index (CPI) report for June were below expectations across the board — and these days, that’s definitely good news. Headline month over month CPI came in at +0.2%, higher than the previous month’s +0.1%, but slimmer than the consensus +0.3% ahead of the print. Month over month core — stripping out volatile food and energy costs — also reached +0.2%, again lower than the +0.3% expected and the +0.4% for May.
This core read has some additional substance to it, as it marks the first time in five months that this figure has not hit +0.4% exactly. The +0.2% is the lowest since February 2021, and it breaks a record-long string of seven straight months at +0.4% or higher, going back to October ’89-April ’90. These are fairly substantial adjustments, as core inflation metrics have proven to be much stickier even as the Fed aggressively ramped up interest rates 5% over the course of just over a year. This dam looks to be breaking — or at least there’s a finger-sized hole draining it down.
The real focus in monthly CPI data, however, is in the year-over-year metrics, and these are measurably down, as well: headline year over year — aka the “Inflation Rate” — came down 100 basis points month over month to +3.0% from the +4.0% reported a month ago. That +4.0% figure fell 90 basis points from the previous month and, skipping backwards one month, we also saw a 100 bps drop for the March Inflation Rate. From September of last year we’ve more than cut this print in half: from +6.6% that month to +3.0% this morning.
And the news just keeps getting better (as shrinking CPI connotes “good news” until this war on inflation is complete) with core CPI, year over year: +4.8% is the lowest print we’ve seen since October of 2021, down half a percentage point (50 bps) from May’s +5.3%, which itself had been the lowest number since November of 2021. Again, we’re talking about some of the stickiest metrics on inflation that exist. And they’re coming down this rapidly? After months of frustratingly slight moves of the needle downward, it would seem the war on inflation has finally gotten some traction.
Pre-market trading thinks so, too: directly ahead of this report’s release, the Dow was up +60 points, the S&P 500 +10 and the Nasdaq +55 points. Moments after the initial headlines came out and started to become absorbed, we saw the Dow jump to +215, the S&P +35 and the Nasdaq +160. These levels have cooled a bit within the last half hour ahead of the opening bell, but clearly the rally we’ve seen this week so far is justified by these good anti-inflation CPI numbers.
This, however, is not to say the Fed is mothballing its policy of raising interest rates further from here. Robust employment numbers from last week — especially on the private-sector side as reported by ADP (ADP - Free Report) — may have already baked another 25 bps rate hike into the cake. The next Fed meeting concludes two weeks from today, and another quarter-point hike would bring us to a Fed funds rate of 5.25-5.50% — the highest rate since 2001. But even with this understood by market participants this morning, it increases the chances that a July hike would be the last one of this cycle.
Image: Bigstock
June CPI: The Fed Winning the War on Inflation?
Soft-landing, anyone? This morning’s much-anticipated Consumer Price Index (CPI) report for June were below expectations across the board — and these days, that’s definitely good news. Headline month over month CPI came in at +0.2%, higher than the previous month’s +0.1%, but slimmer than the consensus +0.3% ahead of the print. Month over month core — stripping out volatile food and energy costs — also reached +0.2%, again lower than the +0.3% expected and the +0.4% for May.
This core read has some additional substance to it, as it marks the first time in five months that this figure has not hit +0.4% exactly. The +0.2% is the lowest since February 2021, and it breaks a record-long string of seven straight months at +0.4% or higher, going back to October ’89-April ’90. These are fairly substantial adjustments, as core inflation metrics have proven to be much stickier even as the Fed aggressively ramped up interest rates 5% over the course of just over a year. This dam looks to be breaking — or at least there’s a finger-sized hole draining it down.
The real focus in monthly CPI data, however, is in the year-over-year metrics, and these are measurably down, as well: headline year over year — aka the “Inflation Rate” — came down 100 basis points month over month to +3.0% from the +4.0% reported a month ago. That +4.0% figure fell 90 basis points from the previous month and, skipping backwards one month, we also saw a 100 bps drop for the March Inflation Rate. From September of last year we’ve more than cut this print in half: from +6.6% that month to +3.0% this morning.
And the news just keeps getting better (as shrinking CPI connotes “good news” until this war on inflation is complete) with core CPI, year over year: +4.8% is the lowest print we’ve seen since October of 2021, down half a percentage point (50 bps) from May’s +5.3%, which itself had been the lowest number since November of 2021. Again, we’re talking about some of the stickiest metrics on inflation that exist. And they’re coming down this rapidly? After months of frustratingly slight moves of the needle downward, it would seem the war on inflation has finally gotten some traction.
Pre-market trading thinks so, too: directly ahead of this report’s release, the Dow was up +60 points, the S&P 500 +10 and the Nasdaq +55 points. Moments after the initial headlines came out and started to become absorbed, we saw the Dow jump to +215, the S&P +35 and the Nasdaq +160. These levels have cooled a bit within the last half hour ahead of the opening bell, but clearly the rally we’ve seen this week so far is justified by these good anti-inflation CPI numbers.
This, however, is not to say the Fed is mothballing its policy of raising interest rates further from here. Robust employment numbers from last week — especially on the private-sector side as reported by ADP (ADP - Free Report) — may have already baked another 25 bps rate hike into the cake. The next Fed meeting concludes two weeks from today, and another quarter-point hike would bring us to a Fed funds rate of 5.25-5.50% — the highest rate since 2001. But even with this understood by market participants this morning, it increases the chances that a July hike would be the last one of this cycle.
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