NEW YORK, July 14 (Reuters) - U.S. consumer inflation slowed more than expected in June, easing anxiety in markets that have been edgy about the prospect of price pressures forcing Federal Reserve rate increases in coming months.
The Consumer Price Index increased by a still-high 3.5% in the 12 months through June after surging 4.2% in May, which was the largest year-on-year rise since April 2023, data from the Labor Department's Bureau of Labor Statistics showed on Tuesday. The CPI fell 0.4% over
the month after advancing 0.5% in May. Economists polled by Reuters had forecast the CPI rising 3.8% year-on-year and dipping 0.1% on a monthly basis.
The pullback in the CPI mostly reflects a retreat in gasoline prices from multi-year highs as a fragile ceasefire between the U.S. and Iran took hold last month. That truce, however, collapsed last week after commercial tankers came under fire in the Strait of Hormuz, triggering military strikes between the United States and Iran.
Excluding the volatile food and energy components, the CPI increased 2.6% year-on-year in June after rising 2.9% in May. The so-called core CPI inflation was unchanged over the month, after gaining 0.2% in May.
MARKET REACTION:
STOCKS: U.S. stock futures were higher after the report, with the S&P 500 up 0.2% and the Nasdaq up 1%.
BONDS: Treasury prices rose, sending yields lower, with the 2-year Treasury yield down 7 basis points at 4.193% and the 10-year Treasury yield down 3 basis points at 4.579%.
FOREX: The dollar fell 0.5% to 100.74.
COMMENTS:
MARK HACKETT, CHIEF MARKET STRATEGIST, NATIONWIDE INVESTMENT MANAGEMENT GROUP, PHILADELPHIA:
"A minor sigh of relief — the numbers were light, which is a modest positive, but the relative lack of reaction is a reminder that the markets have not been as reactive to inflation, the Fed, geopolitics or rates in recent months. This is a modest positive but not enough to be the catalyst we need to break out to record highs. All eyes are on earnings season."
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“This (report) is a bit of a surprise. And obviously, it all reflects one thing, the fall in energy prices. This should help relieve some worries in the bond market, and it should give some wiggling room for the Fed.
“Obviously, it negates the possibility of a rate cut in July. And with Mr. Walsh headed to Capitol Hill this morning, this might give him some ammunition to talk about the prospects of falling inflation in the future.
“I expect (Warsh) to be cautious, obviously. But like I said a few minutes ago, I think today's numbers might just give him some leeway to express some hope that inflation remains contained, it remains tied to energy prices and is not necessarily being fueled by AI.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
"AI isn’t showing up much in CPI, yet. Information technology commodities prices fell 0.9% over the last month. Smartphone prices fell 0.8%. That could change with the July through September numbers as Apple and others announced price hikes are coming. Computer software and accessories prices are up 17.4% from a year ago, but that only makes up 0.03% of the consumer basket. The more important thing for consumer sentiment is that energy number. Regular unleaded gasoline prices were still up more than 27% from a year ago even with the 10% drop in prices in June.
"Headline CPI is hot, but it’s not rotten to the core."
(Reporting by Chuck Mikolajczak, Stehpen Culp, Chibuike Oguh; editing by Colin Barr)
