U.S. core inflation accelerates in June, headline CPI eases year-on-year on fall in energy prices

U.S. consumer price inflation came in at 0.1 percent sequentially for the second straight month in June, stronger than market expectations. On a year-on-year basis, the headline inflation slowed down to 1.6 percent due to a fall in energy prices.

Sequentially, core inflation came in at 0.3 percent, surpassing expectations. The move ends a streak of four straight months of 0.1 percent growth. Therefore, the core rate accelerated to 2.1 percent on a year-on-year basis from May’s 2 percent.

The acceleration in core rate reflected a firming in core goods prices and core services inflation. The price of housing services were up 0.3 percent sequentially in June, bouncing back from a soft 0.1 percent gain in May. This was the most solid contributor to the move higher in core inflation in the month. Apparel prices also recorded a solid rise. Medical care inflation continued to be strong at 0.3 percent. Transportation prices dropped 0.7 percent, building on May’s 0.3 percent fall.

Today’s move implies that the Fed’s preferred core inflation measure, core PCE, might indicate signs of firming as well in June, stated TD Economics in a research report.

“Still, as affirmed both in the FOMC minutes and Chair Powell's testimony, the crosscurrents of weaker global growth and risks has spurred the Fed to take out insurance by cutting rates at its meeting the end of this month. Still, as long as the domestic data continues to hold up, the number of cuts will prove to be fewer than markets are anticipating”, added TD Economics.

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