Cool CPI Inflation Lifts Fed Rate-Cut Hopes
Pricing for services that are core rose 0.1 percent following a moderate 0.2 percent rise during May.
By Investor’s Business Daily
Data from the Consumer Price Index from June revealed that core inflation fell more than was expected in June as the rise in services declined, including the housing cost. The S&P 500 has retreated sharply which suggests that the bull market could slow down, but Treasury yields plummeted when Wall Street celebrated the implications of Federal Reserve rate cuts.
| X NOW PLAYING How The New CPI And PPI Reports Could Impact The Fed, Inflation And Interest Rates
CPI Inflation Report Hits And Misses
The index of consumer prices decreased unexpectedly 0.1 percent during the month of May, compared to. +0.1 percent that was predicted. The 12-month CPI inflation rate slowed to 3.3 percent down from 3.3 percent in the month of May.
The CPI that is the core CPI includes the price index that doesn’t include volatile food and energy prices. Prices increased just 0.1 percent against. May’s figures that were lower than 0.2 percent forecasts. In the end, 3.3 per cent basis CPI value index down from April’s 3.4 percent, was lower than 3.5 percent estimates. The core CPI inflation hit a record maximum that was 6.6 percent in September 20th and 2022.
Non-rounded manner in a non-rounded way, the base CPI was only 0.06 percentage in the month of the month of June. It was the lowest point in the last month since January. 2021.
The price of goods fell 0.1 percent during June, and 1.8 percent in comparison to last period. Prices for new vehicles fell 0.2 percent from May. Then, they fell 0.9 percent in June 2023 that is the highest decrease in the year-over-year rate in the last year since April 2018.
Core prices for services increased only 0.1 percent that is the lowest since August 2021. This follows May’s moderate 0.2 percent rise.
The cost of housing increased by 0.2 percent amid an 2.5 percent drop in hotel and motel rates. However, 0.3 percent increases in the primary rent and the equivalent owner’s rent were among the lowest increases in the last month, since august 2021.
The price of transportation services decreased by 0.5 percent in the time of the second month in which airfares dropped 5 percent.
Stock Market Flashes Biggest Warning In A Year
Jobless Claims
The initial claims of unemployment benefit unexpectedly decreased to 222,000 for the week that ended the 6th of July, down from 239,000 the week prior. However, economists should treat the numbers with a pinch of salt throughout July and into the beginning of August.
The adjustment to time of year during the month of July were difficult due to the holiday on July 4th which is the day of school break and the auto-factory overhauling.
CPI Vs. PCE Inflation
Be aware that the main inflation measure, the main PCE price index, is usually less than the principal CPI. This was the case in May when the primary CPI rose to 0.16 percent, however it was the principal PCE price index that increased by only 0.08 percent, the smallest increase since November of the year 2020.
The primary reason for this disparity is that housing costs which are capable of rising more quickly than inflation in the core basket comprise 43 % of the total CPI basket, yet only 18 percent of primary PCE expenses.
CPI data make up about 70 percent of PCE costs index components, with the rest of the components are directly from the producer index which covers medical. PPI data released early Friday morning around 8:15 a.m. will allow economists to make better predictions for the June’s core PCE Price Index that will be published on the 26th of July.
Based on CPI data, Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote on Thursday that he was anticipating an 0.17 percent increase in the PCE price index. PCE price index for June.
Costs for food that is not part of the home, which increased by 0.4 percent during the month of June. This is one of the categories still seeing the highest price inflation. Although they aren’t included in the primary CPI prices for food services, they are included in the central PCE’s price index.
Fed Chair Powell Turns More Dovish
Federal Reserve Chairman Jerome Powell has told the Senate panel on banking this week and said that the employment market “appears to be fully back in balance,” reduces the limit for reductions in interest rates.
Powell has been stating for a long time that the demand for labor is cooling. He also stated at this point that the market “has been cooling really dramatically by a variety of measures. “
From the time 2022 came to an end, Powell has been adamant about the price for non-housing services, to be one of the most important elements in the outlook on interest rates. This is due to the fact that wages make up a significant part of the price for a variety of services, from haircuts, health insurance to beverages and food. Yet, Powell has said on Tuesday that the rise in prices is “not provide a major source of inflationary pressures on the economy right now. “
The announcement came following Powell’s softer tone at a European Central Bank forum last week: “We are getting back on a disinflationary path,” and also declaring that more accurate inflation data are needed.
Fed Rate-Cut Outlook
After CPI inflation figures, CPI inflation numbers, markets predict 93% chance of reducing rates in September. 18. Fed meeting the Fed meeting, which is higher than 71 percent prior to the release of CPI report. Markets are now facing 91.5 percent chance to cut two quarters by the end of the year, which is an increase from 74 percent.
The chance of cutting off points in the third quarter this year jumped up to 48 percent, an increase from 27.5 percent.
Powell has said that an unjustified weakening of the economy could create more pressure to lower the main interest rate of the Fed from its current levels of restraining. Powell’s assessment that the labor market is “strong” makes clear that we’re not yet there. However, his belief that the labor market for workers is ideally balanced between demand and supply of workers implies that an increase in the slowing of the labor market that could accelerate Fed rate cuts.
S&P 500
The S&P 500 initially increased after studying the latest July CPI inflation report. However, it changed direction and ended up with a 0.9 percent decline on the Thursday’s trading. The S&P 500 increased 1% in the trading session on Wednesday. This was the largest gain of its seven-session streak. The S&P 500 set a record for the 37th time this year and is projected to rise 17.1 percent in 2024.
10 year Treasury yield fell by 8 basis points or 0.8 percentage points to 4.20 0.9 percent, close to the low of four months.
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