Consumer price inflation rose by 1.3% month-over-month (m/m) in June – a modest acceleration from the 1.0% m/m recorded the month prior. On a year-over-year basis, inflation accelerated by 0.5 percentage points (pp) from May, rising to 9.1%.
Energy prices were again a sizeable contributor to the monthly gain – rising 7.5% m/m – as both gasoline (11.2% m/m) and energy services (3.5% m/m) were up on the month. Food prices (1.0% m/m) were also higher in June and are now up over 10.4% on a year-ago basis.
Core inflation (excludes food and energy) rose 0.7% m/m – slightly faster than the 0.6% m/m gain seen in May. On a year-over-year (y/y) basis, core inflation edged lower by 0.2pp compared to the month prior, rising by 5.9% y/y.
Price growth across service categories remained relatively broad-based, rising 0.7% m/m. Shelter costs (0.6% m/m) matched May’s gain, while transportation (2.1% m/m) and medical (0.7% m/m) services both accelerated last month. After two consecutive months of double-digit gains, airfares (-1.8% m/m) retreated modestly on the month.
Core goods prices – includes all goods except food & energy – also accelerated in June, rising by 0.8% m/m compared to 0.7% m/m in May. Gains were seen across all sub-categories, though were led by used (1.6% m/m) and new (0.7% m/m) vehicle prices as well as apparel (0.8% m/m).
Key Implications
Another month, another new multi-decade high for inflation. With fuel prices surging by 11% in June and gains in food prices showing incredible persistence through the first half of the year, a further acceleration in the headline measure was inevitable.
While core inflation has shown a clear sign of rolling over – with the year-over-year measure having now decelerated in each of the last three consecutive months – policymakers will find little solace here as the deceleration is entirely due to base effects. Even with consumer demand for goods having clearly slowed in recent months, core goods prices have continued to accelerate in both May and June. Unless we see a meaningful slowdown on this front over the coming months, the base effects will soon become less relevant and core inflation will remain elevated.
Following this morning’s release, the inversion in the yield curve widened further, with the 10Y-2Y spread now at about negative 15 basis points. With inflation showing no immediate signs of cooling, the Federal Reserve will not be dissuaded by growing recession fears and will continue aggressively tighten rates through the remainder of the year. We expect the FOMC to push ahead with another 75 basis point rate hike at its next meeting on July 27th.
