US inflation forecast to hit lowest level in more than two years in June
US inflation is expected to have dropped to its lowest level in more than two years in June, but stubbornly high price gains for “core” products and services mean the slowdown is unlikely to derail expectations that the Federal Reserve will resume rising interest rates later this month.
The annual increase in the consumer price index is forecast to moderate to 3.1 per cent from 4 per cent in May, according to economists surveyed by Refinitiv. That would mark the slowest rate of inflation since March 2021.
Prices are expected to increase 0.3 per cent on a monthly basis in June, up from 0.1 per cent the previous month, but the annual figure will be helped by so-called base effects, as extremely large rises from June 2022 drop out of the calculations. Official figures will be released at 8.30 Eastern Time on Wednesday.
Economists are forecasting a more modest dip in the “core” CPI, which is expected to slow to an annual rate of 5 per cent in June from 5.3 per cent. Core prices, which strip out volatile food and energy costs, are expected to rise 0.3 per cent month on month, compared with 0.1 per cent in May.
The headline rate of inflation has been steadily moving closer to the Federal Reserve’s 2 per cent target after peaking at more than 9 per cent last June. However, core inflation has proven more sticky, raising expectations that the US central bank will need to raise interest rates further.
The Fed has lifted its benchmark interest rate to a range of 5-5.25 per cent from close to zero at the start of 2022. Officials kept rates steady at their most recent policy meeting in June, to take stock of the effect of previous rises, but have made clear that they expect further increases before the end of the year.
Labour market data released last week also highlighted continued inflationary pressures, with unemployment still close to a multi-decade low and wages growing well above the levels that are considered consistent with the Fed’s target inflation rate.
Futures markets on Wednesday were pricing in a more than 90 per cent chance that rates go up by another 0.25 percentage points at the Fed’s next meeting at the end of July.
Expectations of further rate rises pushed the yield on the policy-sensitive two-year Treasury note to a 16-year high last week. The yield has eased back slightly since then, but analysts at BlackRock predicted that “continued evidence of stubbornly high inflation could add momentum to the recent rise”.
Source: Financial Times
