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US Inflation Slows More Than Expected, Raising Speculation On Fed’s Rate Hike Path

Consumer price index drops to 3% in June, marking twelfth consecutive month of declining inflation

The U.S. consumer price index (CPI) inflation decelerated more than predicted in June, increasing investor conviction that the Fed may decide for only one more rate hike and then halt its tightening cycle.

A ‘Now Hiring’ sign posted outside a restaurant looking to hire workers on May 05, 2023, in Miami, Florida. A report by the Bureau of Labor Statistics showed the US economy added 253,000 jobs in April. (JOE RAEDLE/GETTY IMAGES) 

The annual inflation rate in the United States dropped from 4% in May to 3% in June, according to data released by the Bureau of Labor Statistics on Wednesday.

The long-awaited inflation report is just below the average economist prediction of 3.1%, and marked the twelfth consecutive month of declining inflation and the lowest reading since March 2021.

The annual increase in the U.S. CPI was 3% last month, down from the 4% recorded in May and coming in below the 3.1% estimate.

On a monthly basis, the CPI inflation increased by 0.2% in June, accelerating from the 0.1% increase in May. The figure was below the 0.3% forecast.

Energy prices rose 0.6% in June after a 3.6% monthly drop in May, and were down 16.7% compared to a year ago.

Food prices ticked 0.1% higher on a monthly basis, and were 5.7% higher than a year ago.

Core inflation, which excludes volatile food and energy goods from the CPI basket, increased 4.8% year-on-year, well below May’s 5.3% reading and missing the 5% expected.

Core inflation rose 0.2% month-over-month in June, below both the 0.4% gain seen in May and the 0.3% increase economists predicted. It marks the smallest monthly increase in core inflation since August 2021.

Services were the main contributor to overall CPI inflation, with shelter rising 0.4% on the month and 7.8% year-on-year.

A shopper makes their way through a grocery store on July 12, 2023 in Miami, Florida. The U.S. consumer price index report showed that inflation fell to its lowest annual rate in more than two years during June. (JOE RAEDLE/GETTY) Photo by Joe Raedle/Getty Images) 

Trader estimates for the Fed’s July meeting are unchanged, with probabilities a 0.25% rate hike remaining at 92%. The chances of another rate hike in September increased from 18.5% prior to the release to 15% after the print. The market assigns a 31% probability of two Fed rate hikes by November, down from 33% prior to the CPI release.

The dollar, as closely tracked by the Invesco DB USD Index Bullish Fund ETF (ARCA: UUP), tumbled 0.6% in the minutes following the June CPI data. The U.S. dollar gauge fell to the lowest since early May.

Treasury yields sharply declined, with the 10-year yield down 8 basis points to 3.88% and the two-year yield down 13 basis points to 4.75%.

S&P 500 futures rose 1%, while Nasdaq 100 futures were 1.2% higher, ahead of the Wall Street opening bell. The SPDR S&P 500 ETF Trust (NYSE:SPY) finished the last two sessions in the green.

Gold, as closely tracked by the SPDR Gold Trust ETF (NYSE:GLD), rose 0.8%, buoyed by a lower U.S. dollar and declining Treasury yields

Produced in association with Benzinga

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