Inflation Eased in June, but There's More in the Pipeline
Inflation Eased in June, but There's More in the Pipeline.
Inflation decelerated in June as oil prices tumbled following a ceasefire agreement in the Middle East, but the return to hostilities in recent days suggests that the relief could be short-lived.
The Consumer Price Index rose by 3.5% on an annual basis in June, the Bureau of Labor Statistics said Tuesday, a decline from the 4.2% rate recorded in May. On a monthly basis, prices actually fell, dropping 0.4%, the largest decline since 2020.
The biggest factor in the reduction in inflation was the drop in energy prices, with the energy index falling 5.7% from May to June as gas prices dropped nearly 10%. Prices for car insurance, apparel, medical care and used cars and trucks also fell during the month, though to a smaller degree. The price indices for food, recreation, household furnishings and personal care rose.
Factoring out volatile food and fuel prices, the core CPI rose 2.6% on an annual basis, down from the 2.9% rate recorded in May. On a monthly basis, core inflation was basically flat, with prices holding steady from May to June.
Good news, with some catches: The core numbers suggest that if it weren't for the Iran war, inflation would be much closer to normal levels as it falls toward the Federal Reserve's 2% target rate.
"This reading is very much in the camp that the inflation we've had this year is transitory," said Michael Metcalfe, head of macro strategy at State Street Markets, per the Associated Press . "Yes, gas prices went up, but nothing else did, more or less."
That doesn't mean, however, that inflation has been any less painful for millions of people. "It's still tough for middle-class and moderate-income Americans," Navy Federal Credit Union Chief Economist Heather Long said on social media. "Inflation is wiping out wage gains for many. Grocery prices also continue to rise."
As the war between the United States and Iran picks up again, there's a good chance inflation numbers will get worse in the coming months. On Monday, Brent oil futures rose 9.6% to close at $83.30 per barrel, the biggest jump since May 2020, and those higher oil prices will likely ripple through the economy.
Patrick De Haan, an analyst at GasBuddy, said higher gasoline prices are pretty much baked in at this point. "I've seen enough and believe the national average price of gasoline will again reach $4/gal in the next 7-10 days, if not sooner," De Haan said on social media.
With no end to the conflict in sight, many analysts are betting that inflation will get worse, not better, over the next few months. "I wouldn't bet on these more modest inflation readings continuing for the remainder of the year," said Mike Reid, head of U.S. economics at RBC Capital Markets, per The Wall Street Journal .
Warsh urges caution: Appearing before the House Financial Services Committee, new Federal Reserve chief Kevin Warsh said the central bank must remain vigilant against inflation.
"There might be some that look at this morning's data and say, mission accomplished, everything is swell," Warsh told lawmakers. "That is not my view."
Warsh again called for a "regime change" in policy to defeat inflation, which has remained elevated since the Covid pandemic. "The members of our committee have no tolerance for persistently elevated inflation," Warsh said. "And we share a resolute commitment to restoring price stability. ... If we get policy right — and we will — the inflation surge of the last five years will be a thing of the past."
Still, the soft inflation data for June likely gives Warsh some breathing room on making policy changes and reduces the pressure to raise interest rates.
Andrew Sacher and Troy Durie of Bloomberg Economics said the June inflation report "leaves Warsh with the best of both worlds: He can continue to sound hawkish without having to raise rates." Sacher and Durie added that the June numbers "take a July hike off the table and support our view that the [Federal Open Market Committee] will stay on hold for the rest of the year."
Sinergia Empresarial continuará el seguimiento de esta información sobre inflation Eased in June, but There's More in the Pipeline y ampliará la cobertura conforme se confirmen nuevos elementos relevantes para el ecosistema empresarial.
