Preview - Falling gas prices seen pulling US June CPI lower, but Fed unlikely to relax
<p class="font-claude-response-body break-words whitespace-normal">The likely headline decline is almost entirely a gasoline story rather than a genuine broadening of disinflation, which is why the core reading matters more for markets than the top line print. A core rate still running near 2.9% and services inflation accelerating to 3.4% argues the Fed has little basis to relax even as the annual headline number improves on paper. That combination leaves Warsh with a difficult needle to thread in his first congressional testimony this week, needing to show he is serious about taming inflation without leaning so hawkish that credit conditions tighten further than necessary, all while a fragile Middle East ceasefire adds two way risk to the energy component going forward.</p><p class="font-claude-response-body break-words whitespace-normal">---
Cheaper gas will flatter the headline number, but it won't fix the Fed's real problem.</p><p class="font-claude-response-body break-words whitespace-normal">Earlier:</p><ul><li><a href="https://investinglive.com/central-banks/goldman-expects-us-core-cpi-to-ease-to-2-8-year-on-year-in-june" rel="follow">Goldman Sachs</a> preview</li></ul><p></p><p class="font-claude-response-body break-words whitespace-normal">June CPI figures are due at 8:30am Eastern time (12:30pm GMT) on Tuesday, July 14.</p><p class="font-claude-response-body break-words whitespace-normal">Summary:</p><ul class="[li_&]:mb-0 [li_&]:mt-1 [li_&]:gap-1 [&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc flex flex-col gap-1 pl-8 mb-3"><li class="font-claude-response-body whitespace-normal break-words pl-2">Economists expect the US consumer price index to have fallen 0.2% in June, which would be the first monthly decline since the pandemic, driven entirely by a 15% drop in gasoline prices from mid May to the end of June</li><li class="font-claude-response-body whitespace-normal break-words pl-2">The annual inflation rate is expected to ease to 3.8% from May's 4.2%, which had been the highest reading since April 2023</li><li class="font-claude-response-body whitespace-normal break-words pl-2">Core CPI, which excludes food and energy, is expected to rise 0.2% in June, with the annual core rate seen easing only slightly to 2.8% from 2.9% in May, up from 2.5% at the start of the year</li><li class="font-claude-response-body whitespace-normal break-words pl-2">Services inflation, covering items such as rent, car repairs, recreation and dining out, is running at a 3.4% annual pace, up from 2.9% in January and well above the 2010 to 2019 average of 2.6%</li><li class="font-claude-response-body whitespace-normal break-words pl-2">Oil prices rose Monday to around 75 dollars a barrel, still well below the roughly 115 dollar peak reached during the US Iran conflict but above pre conflict levels near 65 dollars, after a fragile ceasefire between the two sides broke down</li><li class="font-claude-response-body whitespace-normal break-words pl-2">New Fed Chair Warsh, who testifies before Congress this week for the first time since taking the role in May, faces the challenge of taming inflation without triggering rate increases steep enough to further raise borrowing costs</li></ul><p class="font-claude-response-body break-words whitespace-normal">
US consumer prices are expected to have fallen in June for the first time since the pandemic, according to MarketWatch, though the decline is almost entirely the product of cheaper gasoline rather than a broader cooling in the cost of living. Economists forecast the consumer price index dropped 0.2% for the month, helped by a 15% slide in the price of a gallon of regular gasoline between mid May and the end of June, and expect the annual inflation rate to ease to 3.8% from May's 4.2%, which had itself been the highest reading since April 2023.</p><p class="font-claude-response-body break-words whitespace-normal">The improvement looks less convincing beneath the surface. Core CPI, which strips out food and energy, is expected to rise 0.2% in June, with the annual core rate seen slipping only to 2.8% from 2.9% in May, itself up sharply from 2.5% at the start of the year. That persistence is being driven largely by services inflation, covering things like rent, car repairs, recreation and dining out, which is running at a 3.4% annual pace, up from 2.9% in January and well above the 2.6% average recorded between 2010 and 2019. Residual effects from earlier tariffs may have added to costs in some goods categories, but services, which are largely insulated from both tariffs and energy prices, remain the tougher part of the inflation picture, with some economists noting the World Cup could have given June's services costs a temporary lift through higher demand for hotels, flights, meals and tickets.</p><p class="font-claude-response-body break-words whitespace-normal">The energy backdrop remains fluid. Oil prices rose Monday to around 75 dollars a barrel after a fragile ceasefire between the US and Iran broke down and both sides resumed strikes, though prices remain well below the roughly 115 dollar peak reached earlier in the conflict and are not far from pre conflict levels near 65 dollars. Further gains look limited unless the fighting intensifies to the point where the Strait of Hormuz, a critical route for oil shipments, is closed to traffic.</p><p class="font-claude-response-body break-words whitespace-normal">All of this leaves incoming Fed Chair Warsh, nominated in part on hopes he would lower borrowing costs, with a difficult balance to strike as he testifies before Congress this week for the first time in the role. He must show he is serious about bringing inflation down without tightening policy so aggressively that credit becomes even more expensive, a calibration that will depend heavily on how the Middle East situation, and its effect on oil prices, evolves from here. With the core and services measures both still running well above the Fed's comfort zone, there is considerable doubt that inflation will slow quickly enough to keep the central bank from raising rates further. </p><p class="font-claude-response-body break-words whitespace-normal"></p>
This article was written by fl6553e4b45d84486a91658a8b3f02bf22 at investinglive.com.
This article was sourced from Forexlive. WealthWire India aggregates financial news for informational purposes only. This does not constitute investment advice.
