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 after rising 2.9% in May. The so-called core CPI inflation was unchanged over the month, after gaining 0.2% in May. The Fed tracks the Personal Consumption Expenditures Price Indexes for its 2% inflation target.
Financial markets expected the Fed to keep its benchmark overnight interest rate unchanged in the 3.50%-3.75% range this month. Traders, however, saw a roughly 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.
Stocks on Wall Street were trading higher. The dollar eased against a basket of currencies. U.S. Treasury yields fell.
Core inflation was restrained by a 2.0% drop in motor vehicle insurance, which followed a 1.7% decline in May.
Communication prices decreased 1.5% over the month, while the cost of shelter rose 0.1%, the smallest monthly gain since January 2021. Owner's equivalent rent increased 0.2%, and prices for hotel and motel rooms dropped 2.3%, likely as the boost from the FIFA World Cup faded. The cost of healthcare eased 0.1%, with health insurance declining 0.5%.
But the cost of recreation increased 0.5%, and airline fares rose 0.2%. The overall cost of services was unchanged in June.
Core goods prices dipped 0.1% for a second straight month, amid a 0.6% decline in the cost of apparel, which suggested the pass-through from tariffs could be over. Prices for used cars and trucks dropped 0.2%, while prescription medication fell 0.1%. Tobacco and smoking product prices slipped 0.7%, the biggest drop since July 2014.
But prices for household furnishings and operations rose 0.2%. Some economists viewed the decreases in motor vehicle insurance, tobacco products and healthcare as a fluke.
"There are a number of one-offs, but also several intriguingly soft readings that could signal meaningful cooling," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. "I am highly skeptical that inflation has just rolled over."
Based on the CPI data, economists estimated that core PCE inflation increased 3.3% year-on-year in June after advancing 3.4% in May. It was forecast rising 0.2% over the month after climbing 0.3% in May. The estimates could change after June's Producer Price Index report on Wednesday.
June's PCE inflation data would still be based on the old methodology for portfolio management and investment advice services, legal services, and computer software and accessories, which will be changed with the annual revisions in September.
"For the Fed, this is a relief, but not enough to put it at ease," said Carl Weinberg, chief economist at High Frequency Economics. "We predict prices will accelerate again in the next few reports as energy and fuel prices rise again, and as their increases 'bleed' into core prices via transportation costs."
SPY•
