June CPI Report Takes Center Stage as Oil Prices Surge
US inflation data for June lands today with oil prices climbing and Fed rate-hike odds shifting again.
All eyes are on one thing today: the June US Consumer Price Index report. Markets are laser-focused on the inflation print as a combination of fresh geopolitical tension and rising oil prices has traders rethinking what the Federal Reserve might do next. If you were hoping to tune out and watch soccer, well, markets had other plans.
The US-Iran conflict has reignited, and oil is reacting accordingly. WTI crude is flirting with $80 a barrel while Brent has already touched $85. That kind of energy price spike tends to make inflation watchers nervous — and it's pushing traders to reassess their Fed outlook just weeks after a ceasefire deal had briefly calmed things down.
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Here's what economists expect from the June CPI print: headline annual inflation is forecast to dip to 3.8%, down from 4.2% in May. A big reason for that expected cooldown is a sharp drop in gasoline prices — energy is estimated to have fallen more than 5% month-over-month after surging through the spring. Core inflation, which strips out food and energy, is expected to edge down only slightly to 2.8% from 2.9%, meaning the stickier parts of the inflation basket aren't cooling nearly as fast.
One wild card in this report is the FIFA World Cup, which ran through much of June with 11 US host cities. Bank of America's credit and debit card data shows restaurant and bar spending in those host cities rose 5.3% year-over-year in the three weeks ending June 27, compared to just 3.8% in the rest of the country. And that data doesn't even capture what international tourists spent — so the real boost to spending could be meaningfully larger than the numbers suggest. Lodging costs in particular are expected to rise sharply, potentially doubling May's monthly rate to around 0.8%.
As for the Fed, markets are currently pricing in roughly 43% odds of a rate hike in July, with a full 25-basis-point hike now fully priced in for September. How today's CPI number lands will almost certainly move those odds, making this one of the more market-sensitive inflation reports in recent months. Continue reading at Forexlive.
