The overall trend of inflation remained subdued in June
Core consumer prices rose just 0.1% m/m in June, less than expected (0.2%) and less than in May (0.3%). The headline index increased by 0.3% as expected. Gasoline accounted for two-thirds of the rise in prices.
Taking a slightly longer perspective, the trend of inflation rates creeping upwards has not been broken. Core CPI now stands at 1.9% y/y compared to 1.6% in January. The annualized 3m/3m core rate rose to 2.5% in June, the highest since September 2011. Compared to the Euro area, US inflation is not that far away below target. The question now is, whether core inflation will also be that low going forward. Given our view of a quite robust US economy, we do not expect that to happen.
In its statement on 18 June, the FOMC said that it “is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.” The CPI is not the FOMC’s preferred inflation measure. Said said, today’s data provide no evidence of accelerating underlying inflation. Therefore no reason for the FOMC to turn less dovish next week.
It seems that markets were bracing for a higher inflation print. The USD 2Y break-even inflation dropped 8 basis points on the release. Otherwise the markets reacted “risk on”: gold prices and stock prices up, the USD weakened broadly, especially against the “carry” currencies (e.g. down 0.4% vs AUD).
Nordea