🔥U.S. CPI in June beats expectations unexpectedly well

🔴BLS has just released June inflation data, which is so good for the market it’s almost unbelievable:
- Headline falls 0.4% MoM (forecast -0.2%), bringing annual inflation back to 3.5% from 4.2% in May—the sharpest month-over-month decline since April 2020
- Core CPI is flat at 0.0% MoM (forecast +0.2%), taking the 12-month increase to 2.6% from 2.9%
- Energy tumbles 5.7% during the month; gasoline falls 9.7% after crude oil drops more than 20% thanks to the U.S.-Iran ceasefire order on 17/6
- Especially, Shelter rises only 0.1%, food +0.2% -> no sign of broad-based price pressure
Bond yields plunge sharply, DXY weakens, and gold and silver jump higher as markets expect Fed rate hikes to cool off.
-> Ahead of the report, the market priced in a 39% probability of a rate hike in July and a 77% chance of at least one hike before the end of the year.
🔴The drop in #CPI headline is almost purely an oil-and-gas story. The real bright spot is core at 2.6%, showing that the energy shock from the Iran war hasn’t spilled over into commodity prices.
This data reflects events that have already happened. The ceasefire agreement collapsed on 8/7, airstrikes resumed, and Iran declared the closure of the Strait of Hormuz. The energy-price decline creating today’s “pretty number” is likely to reverse—July CPI is likely to look bad again.
In any case, this data gives Warsh room and no need to rush to raise rates.