By Orbex

The monthly inflation report from the United States will be released today. Forecasts show that headline inflation will remain tame on an annualized basis. The data comes amid the markets speculating a Fed rate cut.

Headline inflation for June is forecast to remain flat on a month over month basis. This marks an unchanged print following a 0.1% increase in May. On a yearly basis, the inflation rate is expected to slow from 1.8% in May to 1.5% in June. This would mark another month of declines in the annualized CPI.

Core CPI, which excludes the volatile food and energy prices are forecast to remain unchanged at 2.0% on the year. On a monthly basis, core CPI is expected to tick a notch higher to 0.2%, up from 0.1% previously.

Inflation in the US has remained tame for the most part this year.

However, the Fed maintains that inflation weakness remains transitory. But the prolonged weaker pace of increase in inflation has sparked speculation of a rate cut, alongside the expected lower GDP growth in the world’s largest economy.

Inflation Stays Broadly Muted in May

Headline inflation barely increased in May with the data pointing to inflation staying tame for another month. Combining this with the slower pace of growth in the economy, the data for May built up weight for the Fed to cut rates.

Data from the US Labor Department showed that there were small pockets where inflationary pressures were felt. These included rents and healthcare costs which rose sharply during the month. The data showed conflicting reports, which could lead to the Fed to use a wait and watch mode for its monetary policy guidance.

Data for May saw consumer prices rising just 0.1% on a month over month period. Price increase in food was offset by cheaper gasoline prices. The pace of increase in inflation in May was slower compared to the 0.3% increase in April.

Gasoline prices fell 0.5% after rising 5.7% in the previous month. Food prices rebounded 0.3% during the month, recovering from a 0.1% decline in April. The price of used motor vehicles and trucks fell 1.4%. This was the biggest drop since September 2018 and it was also a fourth consecutive monthly decline.

On a year over year basis, US inflation rose 1.8%. This was a modest slowdown from the 1.9% yearly increase seen in April. Economists polled forecast that inflation would rise 1.9% on the year.

The core inflation rate which excludes the volatile food and energy prices edged 0.1% higher on the month. This was the fourth consecutive monthly gain in the core inflation rate. Still, the pace of increase was modest.

The core CPI was pinned down by a decline in prices of used automobiles. On a yearly basis, core inflation rate ticked up 2.0%, slightly slower compared to the 2.1% increase in May.

Will Consumer Prices Report Beat Estimates?

Given the conservative estimates of no change during the month, there are prospects that consumer price data could beat estimates. This comes largely due to the higher energy prices seen during the month of June.

International crude oil prices were seen trading back near the $60 handle in the run-up to the OPEC meeting in early July this month. However, given that most of the gains in inflation during the previous month came from other sectors, there is scope that we could see this trend.

Last week, the markets reacted strongly following the June jobs report which came out stronger than expected. Likewise, a stronger than expected inflation report could potentially see this view being taken by the markets.

The core inflation data will also be something to be watched. This could potentially underline the inflationary pressures in the market. The impact of today’s CPI will be felt across all asset classes. This comes as investors are looking for further evidence of a slowdown in the US economy that could prompt the Fed to cut rates.

By Orbex