Inflation Eases in June as Energy Costs Fall
Consumer prices fell 3.5% year-over-year and 0.4% month-to-month in June, led by a 5.7% decline in energy costs; consumer sentiment and retail spending remained steady.
The Consumer Price Index declined to 3.5% year-over-year in June and fell 0.4% from May, the largest monthly drop since April 2020. Energy prices fell 5.7% in June and offset modest increases in shelter and food.
Core CPI, which excludes food and energy, eased to 2.6% year-over-year and was unchanged on the month. The core reading came in below forecasts that had projected a small monthly rise.
The preliminary July University of Michigan Consumer Sentiment Index rose to 54.4 from a final June reading of 49.5. The report showed gains across age, income and political groups. One-year inflation expectations fell to 4.2% from 4.6%; five-year expectations held at 3.3%. Most survey interviews occurred before recent geopolitical events and a subsequent rise in pump prices.
Retail sales increased 0.2% in June, marking the fifth straight monthly gain. Gasoline spending declined and reduced the headline pace. A control-group measure that excludes gas stations, auto dealers and building materials rose 0.5% in June, the sixth consecutive monthly increase but below May’s 0.8% pace.
Equity and bond markets reflected the mixed data. The S&P 500 fell 1.6% over the week and closed below its 50-day moving average. The 10-year Treasury yield finished near 4.55% and the 2-year yield near 4.18%. The CME FedWatch Tool showed about a 90% probability that the Federal Reserve will leave policy rates unchanged at its next meeting, and markets price in no further tightening through next year.
Renewed geopolitical tensions have been reported recently, and gasoline prices have rebounded since the early July averages. Energy prices drove June’s disinflation, while the recent movements in fuel costs and geopolitical developments postdate many of the surveys and price measures for the month.
This week’s scheduled data include weekly jobless claims, the Chicago Fed National Activity Index for June, June new home sales, and the July Kansas City Fed manufacturing index. These reports will provide additional information on labor market trends and demand dynamics following June’s inflation, sentiment and retail figures.
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