Hot US June CPI turns up pressure on the Fed

2022.07.13 16:06

Budrigannews.com – U.S. consumer prices accelerated in June as gasoline and food costs remained elevated, resulting in the largest annual increase in inflation in four decades and cementing the case for the Federal Reserve to hike interest rates by 75 basis points later this month.

The consumer price index increased 1.3% last month after advancing 1.0% in May, the Labor Department said on Wednesday. In the 12 months through June, the CPI jumped 9.1%. That was the biggest gain since November 1981 and followed an 8.6% rise in May.

MARKET REACTION:

STOCKS: S&P 500 futures turned sharply lower, and were down 1.6%, pointing to an ugly open on Wall Street

BONDS: U.S. 10-year yields rose to 3.0524%; Two-year yields rose to 3.1775%, deepening the 2s/10s yield curve inversion to more than 13 basis points

FOREX: The dollar index turned 0.21% higher

COMMENTS:

STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST, MIZUHO SECURITIES USA LLC, NEW YORK

“It is hot and suggests there will be further yield curve inversion. It suggests the front end of the curve is going to move up some more, as people price in 75 basis points, and maybe moving that end-of-year estimate from 3.5% to 4%, as that lone dot was in the June summary of economic projections.

“This is a problem with all these data in that this becomes sticky for a while and when it finally changes it will change fairly quickly. But waiting for it to change is always the problem and everyone anticipates the next month is the peak, when actually it could be further into the equation than you thought. That’s what this number shows you.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“The numbers were worse than expected, but the fact that the core (CPI) shows some deceleration year-over-year shows a bit of a hint that this the last hurrah in terms of inflation moving higher.”

“While the numbers are ugly and certainly guarantee a 75 basis points (interest) rate hike by the Fed in July, the hints that inflation might be beginning to decelerate are there.”

“It might even tip the hands of the Fed to raise (interest rates) by 75 basis points in September as well.”

“Most of the gains are coming in energy. The good news is that energy prices have begun to head lower and that should show up in the next reading.”

“The market doesn’t like it, but this is the first reaction. I suspect once the numbers are fully digested, we’ll see a repeat of what we’ve seen for the last couple of days.”