June Inflation Lands As Expected — But Cooler Core Reading Fuels Fed Rate Cut Hopes

The June inflation report brought a dose of relief to Wall Street on Tuesday morning, as the headline Consumer Price Index (CPI) matched expectations, while core inflation came in slightly cooler than forecast, reviving optimism for interest rate cuts later this year.

The headline CPI rose 0.3% month over month and 2.7% year over year, exactly in line with the consensus. That marks an acceleration from May's 2.4% annual rate and the fastest price increase since January.

But the real surprise came from the core readings. Core CPI, which excludes food and energy, rose just 0.2% on the month and 2.9% annually, compared to expectations of 0.3% and 3.0%, respectively.

While still elevated, the softer print gave markets a reason to believe the inflation uptrend might be more contained than feared.

The food index rose 0.3% for the second consecutive month, continuing to put pressure on consumer wallets. Grocery prices also rose 0.3%. Coffee jumped 2.2% in June, while citrus fruits climbed 2.3%. Beef prices also edged up 2%, though egg prices plunged by 7.4%

Energy prices also rebounded. After a drop in May, the energy index rose 0.9% in June. Gasoline prices increased 1.0%, electricity prices also climbed 1.0%, and natural gas edged up 0.5%. However, looking at the year-over-year numbers, gasoline prices are still down 8.3%, while electricity and natural gas prices are up 5.8% and 14.2%, respectively.

Some relief came from categories that had previously driven inflation. Used cars and trucks dropped 0.7% in June, adding to May's 0.5% decline, while new vehicle prices slipped 0.3%. Lodging away from home saw a sharp 2.9% decrease, and airline fares were down 0.1%.

Shelter was still up a firm 3.8% year over year. Other notable annual gains include a 6.1% increase in motor vehicle insurance, 3.3% for household furnishings and operations, and 2.8% for medical care.

Market Reactions

Markets welcomed the data with a cautious sense of relief. Futures on the S&P 500 rose 0.4%, while contracts on the tech-heavy Nasdaq 100 jumped 0.7%, putting both major indexes on track to open at fresh record highs.

In the bond market, Treasury yields slipped, with the 10-year yield easing to 4.43%. Fed funds futures held steady, continuing to fully price in two rate cuts totaling 50 basis points by the end of 2025.

Gold, as tracked by the SPDR Gold Trust GLD, was flat on the day.

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