Further increases are likely as oil prices rose to a four-week high on Tuesday after the U.S. reimposed a naval blockade of Iran. President Donald Trump said on Monday the United States would reinstate a blockade in the Strait of Hormuz, a vital route for global oil supplies, that has become one of the main battlegrounds of the conflict.
Food prices rose 0.2%, matching May's gain. They advanced 3.0% year-on-year in June. Grocery prices climbed 0.2%, lifted by a 4.3% jump in the cost of eggs and a 1.2% increase in dairy products. But prices for nonalcoholic beverages fell 1.5%, with coffee declining 2.0%. Fruits and vegetables were 0.2% cheaper. They, however, increased 5.3% year-on-year.
Excluding the volatile food and energy components, the CPI increased 2.6% year-on-year in June after rising 2.9% in May. The so-called core CPI inflation was unchanged over the month, after gaining 0.2% in May. Core inflation was restrained by a 2.0% drop in motor vehicle insurance, which followed a 1.7% decline in May. The cost of communication decreased 1.5% over the month while apparel prices fell 0.6%.
Prices for used cars and trucks slipped 0.2%. The cost of shelter rose 0.1%, the smallest monthly gain since January 2021. Owner's equivalent rent increased 0.2%, while prices for hotel and motel rooms dropped 2.3%. The cost of recreation increased 0.5% while prices for household furnishings and operations rose 0.2% as did the cost of personal care.
The Fed tracks the Personal Consumption Expenditures Price Indexes for its 2% inflation target. Financial markets expected the central bank to leave its benchmark overnight interest rate unchanged in the 3.50%-3.75% range this month. Traders, however, saw a 60% chance of a rate hike in September.
Inflation was last below 2% in early 2021. Minutes of the Fed's June 16-17 meeting published last week showed policymakers' concerns about inflation mounted last month.
SPY•
