Inflation decelerates more than expected in June

The consumer price index accelerated 0.2% monthly in June (vs. 0.3% expected). As a result, annual inflation was 3% (vs. 3.1% expected and 4% in May), its lowest level since March 2021. Core CPI inflation, which excludes food and energy, rose 0.2% in the month and was better than expected. It is worth mentioning that June’s variation represented the lowest monthly change since 2021. On an annual basis, core CPI stood at 4.8% (vs. 5% expected and 5.3% in May).

Once again, the index for shelter was the main contributor to the monthly increase, accounting for 70% of the increase.  In this context, in the month it advanced 0.4% (+7.8% annually). On the other hand, the food index decelerated its advance to 0.1% (+5.7% annually); where food at home remained unchanged during the month (+4.7% annually), while food away from home increased 0.4% (+7.7% annually). As for the energy index, this component rose 0.6% in the month. However, in its annual variation, it posted a drop of 16.7%. Particularly noteworthy were the annual decreases of 26.5% and 36.6% in gasoline and fuels, which helped to offset the 5.4% annual increase in electricity. Finally, airline fares, communication, used cars and trucks, and household furnishings were some of the components that decreased during the month.

In summary, these figures can be interpreted as positive, providing some relief for the Federal Reserve as it confirms that inflation continues to decline from a peak of about 9% annually a year ago, the highest since November 1981. However, there is still some way to go, as core CPI remains elevated, reflecting pressures in the index for shelter, combined with the employment situation remaining strong. In June alone, 209,000 new jobs were created, the unemployment rate stood at 3.6% and wage increases were observed in the order of ~4.4% annually. Therefore, the consensus discounts with a 92% probability that the Fed will implement a 25bp hike at its next meeting on July 26th.

CPI monthly change (%) over the last twelve months

Source: U.S. Bureau of Labor Statistics     

Change (%) in the last twelve months in CPI and Core CPI

Source: U.S. Bureau of Labor Statistics

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