With a hotter-than-expected private payroll increase for June, investors across the nation feared inflated consumer prices would force the Federal Reserve to tighten rates to two-decade highs. Fortunately for markets, the recent release of June’s consumer price index report did not corroborate the labor market’s story. Month-to-month, consumer prices on average rose 0.2%, slightly cooler than the estimate of 0.3%. The shocking news sent markets higher, with both the Nasdaq Composite and the S&P 500 chasing levels not seen in 14 months. Regardless, CPI reached its lowest level since March 2021, with June up 3% from a year ago. Furthermore, core CPI, the metric that excludes volatile food and energy prices, was also met with a 0.2% increase.
When broken down, inflation for the month of June was decelerated by large declines in prices for gasoline, airline fares, and used vehicles. Food prices also saw moderate gains, furthering the trend for lower grocery prices throughout 2023. What continued to fight against disinflation was shelter costs, as minimal improvements have been made throughout the housing sector. Despite the successes relative to last year’s inflation, experts believe the moderate gains will not deter the Fed from raising interest rates this month. As the year goes on, investors could be hopeful improvements in the housing market allow the Fed to loosen fiscal policy, ensuring the economy truly does have a soft landing.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.