WASHINGTON (Reuters) -U.S. consumer prices picked up in June, likely marking the start of a long-anticipated tariff-induced increase in inflation that has kept the Federal Reserve cautious about resuming its interest rate cuts.
The Consumer Price Index increased 0.3% last month after edging up 0.1% in May, the Labor Department’s Bureau of Labor Statistics said on Tuesday. That was the largest gain since January. In the 12 months through June, the CPI advanced 2.7% after rising 2.4% in May.
Economists polled Reuters had forecast the CPI would climb 0.3% and increase 2.6% on a year-over-year basis.
MARKET REACTION:
STOCKS: U.S. stock futures extended gains following the CPI data.
BONDS: U.S. Treasury yields pared declines, 10-year yield flat.
FOREX: U.S. dollar gains on the yen
COMMENTS:
MICHAEL ASHLEY SCHULMAN, CHIEF INVESTMENT OFFICER, RUNNING POINT CAPITAL, LOS ANGELES
“This is a great number for the bond market. Bonds hate inflation; they love low inflation numbers. I’ve said since the beginning of the tariff turmoil that tariffs are not inflationary. Technically, tariffs are a tax, and no tax is ever inflationary. All taxes are deflationary. They take away spending power. But in this case, I don’t think the Fed have seen the full impact of tariffs yet…I think we still we still need to wait and see on the Fed. It does increase the chance that the Fed cuts in September. But I think we need to realize that unemployment is still low, and the economy is still growing. So, you still have to ask yourself: why would the Fed cut? Would this be a preemptive cut to get ahead of a possible uptick in unemployment? I’m still not including a Fed cut in my outlook.”
GINA BOLVIN, PRESIDENT, BOLVIN WEALTH MANAGEMENT GROUP, BOSTON:
“Inflation’s not going quietly. June’s 2.7% CPI reading tells us the road back to 2% won’t be smooth and gives the Fed reason to pause before cutting rates. Markets expecting an aggressive pivot may be disappointed. For investors, patience pays—stick to diversification, favor quality, and use short-term fixed income to your advantage.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“Tariffs are in the data, but it’s not as devastating as many feared. Appliances and household equipment and furnishings prices jumped nearly 2%, but those only make up around 1% of the consumer price index. Services make up the bulk of the consumption basket and there is scant sign of accelerating inflation there. Rent rose 0.2%, lodging away from home fell 2.9%. It’s not that tariffs don’t matter, it’s just that they don’t matter to inflation as much or as mechanically as many feared.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“It’s basically good news because core, on a monthly basis, up 0.2% is in line. The yearly number is a little bit higher than expected. What we’re seeing in the headline numbers is that some of the tariff inflation is probably creeping in.”
“So it’s a little bit hotter than expected, but it’s not all bad news. there is a slight bit evidence of tariff inflation kicking in.”
“This data bails out the Fed and it puts them on hold in July. They will have to look at the July and August numbers to make a decision in in September.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE:
“Traders were keeping a close eye on this morning’s CPI report and the Fed was probably looking even more closely at it as the internal debate continues into whether or not they should be cutting interest rates right now.”
“Fortunately, the report this morning was mostly in line with expectations and the core (ex-food and energy) numbers told a story of inflation that was in check (e.g. month-over-month lower than expected and year-over-year inline with +2.9% consensus).”
“If it’s true that inflation is staying in check, then the Fed can go ahead and cut interest rates – potentially as early as September – but if subsequent reports show a different story, then the Fed is going to have to stay on hold even longer.”
(Compiled by the Global Finance & Markets Breaking News team)
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