Consumer Inflation in June Eases, Evidence of Disinflation Encouraging Markets

Annual inflation cooled for the eleventh straight month on a year-over-year basis, decelerated to 3.0% from 4.0% in May, marking its smallest increase since March 2021, while core CPI decelerated to 4.8% from 5.3% in May. The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%. On a monthly basis, CPI was up 0.2% month-over-month (consensus 0.3%) with the index for shelter was the largest contributor again, 70% of the increase. Core CPI, which excludes food and energy, was also up 0.2% month-over-month (consensus 0.3%), which was the smallest month-over-month change since August 2021. The Federal Reserve would be relieved from the report.


US June 2023 Highlights


  • US CPI (Y/Y) Jun: 3.0% (exp 3.1%; prev 4.0%)
  • US CPI (M/M) Jun: 0.2% (exp 0.3%; prev 0.1%)
United States Inflation Rate
United States Inflation Rate
United States Consumer Price Index (CPI)
United States Consumer Price Index (CPI) MoM

Core inflation:

  • US CPI Core (Y/Y) Jun: 4.8% (exp 5.0%; prev 5.3%)
  • US CPI Core (M/M) Jun: 0.2% (exp 0.3%; prev 0.4%)
United States Core Inflation Rate
United States Core Inflation Rate
United States Core Inflation Rate MoM

Real Earnings

  • US Real Avg Weekly Earnings (Y/Y) Jun: 0.6% (prevR -0.6%)
  • US Real Avg Hourly Earning (Y/Y) Jun: 1.2% (prev 0.2%)

Where the Prices Changed

  • The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%.
  • Energy cost slumped 16.7% (vs -11.7% in May), with prices falling 36.6% for fuel oil, 26.5% for gasoline, and 18.6% for utility gas service.
  • Electricity prices increased by 5.4%.
  • Food (5.7% vs 6.7% in May)
  • Shelter (7.8% vs 8%).
  • Smaller price increases were also recorded for new vehicles (4.1% vs 4.7%), apparel (3.1% vs 3.5%), and transportation services (8.2% vs 10.2%).
  • Cost of medical services was down 0.8% and prices of used cars and trucks declined 5.2%.

It appears the surge in prices is over with supply chains mostly healed. Services inflation is the directional key with consumer demand having shifted back toward services from goods.

Price changes over last year (CPI report)…

  • Transportation: +8.2%
  • Shelter: +7.8%
  • Food away from home: +7.7%
  • Electricity: +5.4%
  • Food at home: +4.7%
  • New Cars: +4.1%
  • Overall CPI: +3.0%
  • Medical Care: -0.8%
  • Used Cars: -5.2%
  • Gas Utilities: -18.6%
  • Gasoline: -26.5%
  • Fuel Oil: -36.6%

Lower spending on goods, ongoing improvement in supply chains and falling shipping costs should continue to ease price pressures in coming months. The deflationary pull from improved supply chains will lessen with order now largely restored at US factories and ports. However, there are many possible shifts with the multiple geopolitical powder kegs out there with Russia and China.

A reminder we are coming off June 2022 9.1% inflation rate which was the highest in four decades. CPI has moderated after resurging in August with aggressive Fed interest rate rises.

The new data also reflects an update to the weights of goods and services in the spending basket to capture changes in consumer preference. The Labor Department previously updated these every two years but starting with January’s release will revise them annually.

Used cars & trucks component of CPI -5.2% year/year in June … month/month drop clocked in at -0.5% @LizAnnSonders

Services Inflation Peaked?

  • Services inflation in the United States eased for the fifth month to 5.7% year-on-year in June 2023, the lowest in over a year, from 6.3% in the prior month.
United States Services Inflation
Owners’ equivalent rent portion of CPI saw slight easing in trend in May, down from +8.1% year/year to +8% @LizAnnSonders

Market Reaction

  • The initial reaction to the CPI is for the dollar and yields moved lower and the NASDAQ is higher all suggesting a “happy” number for the market.
  • The S&P 500 futures are up 39 points and are trading 0.8% above fair value.
  • The Nasdaq 100 futures are up 161 points and are trading 1.1% above fair value.
  • The Dow Jones Industrial Average futures are up 236 points and are trading 0.7% above fair value.
  • Treasury yields, which were already moving lower ahead of the CPI report, took a sharp turn lower in response to the data.
  • The 2-yr note yield is down 13 basis points to 4.77%
  • The 10-yr note yield is down seven basis points to 3.91%.
  • EURUSD is trading at 1.1066 up from 1.1020 just before the release.

Yields After CPI

  • 2-yr: -11 bps to 4.78%
  • 3-yr: -12 bps to 4.43%
  • 5-yr: -11 bps to 4.13%
  • 10-yr: -7 bps to 3.91%
  • 30-yr: -2 bps to 4.00%

Yields Before CPI

  • 2-yr: -4 bps to 4.85%
  • 3-yr: -4 bps to 4.51%
  • 5-yr: -5 bps to 4.19%
  • 10-yr: -3 bps to 3.95%
  • 30-yr: -1 bp to 4.01%

In forex the USD is lower on the back of lower yields.

Yearly Price Increases

  • A slowdown was seen in food prices (10.1% vs 10.4%) while cost of used cars and trucks continued to decline (-11.6% vs -8.8%).
  • Cost of shelter increased faster (7.9% vs 7.5%)
  • Energy rose (8.7% vs 7.3%), with gasoline prices rising 1.5%, reversing from a 1.5% decline in December. On the other hand, both fuel oil (27.7% vs 41.5%) and electricity prices slowed (11.9% vs 14.3%).

Shelter Costs Adding to Homeless

Shelter costs, the biggest services’ component and make up about a third of the overall CPI index.

  • Shelter cost which accounts for over 30% of the total CPI basket, slowed for the first time in two years (8.1% vs 8.2%)
  • The index for shelter (+0.4%) was the largest contributor to the increase in total CPI and core-CPI; however, the 0.4% increase was the smallest increase for the shelter index since January 2022.

Rent Inflation

Owners’ equivalent rent (OER) component of CPI +7.8% year/year in June, down from +8% in prior month @LizAnnSonders

Rent Inflation in the United States eased for the third month to 7.8% year-on-year in June 2023, the lowest in six months, down from 8% in the prior month.

Rent Inflation

Housing Utilities

United States CPI Housing
US CPI Housing Utilities

Many analysts had expected back in March 2022, clearly, they have been mistaken to mark the inflation peak although the war in Ukraine is far from over, supply chain bottlenecks persist, and consumer demand remains elevated which is likely to weigh on the CPI.

Food Inflation Persistently High, But Falling

United States Food Inflation
US CPI Food inflation

Food inflation in the United States fell to a 15-month low of 7.7% year-on-year in April 2023, from 8.5% in the prior month and a peak of 11.4% in August 2022. Prices continued to slow down for food at home (7.1% vs 8.4% in March) and food away from home (8.6% vs 8.8%).

In May Egg prices getting fried, poached, and scrambled … Another l(egg) down in egg prices … 3m % change in CPI eggs component largest drop (-18%) since 1984 @LizAnnSonders

Transportation Inflation Persists

United States CPI Transportation
US CPI Transportation Inflation

The effects of the coronavirus pandemic, then the supply crisis and throw in the Russian invasion of Ukraine on top have been weighing on prices. Since last year many businesses closed and lockdowns were imposed, denting economic activity leaving the world vulnerable.  A jump in commodities and material costs, coupled with supply constraints pushed producer prices up and some companies are passing those costs to clients.

“I’m making more money…But I don’t see it because I’m paying more money for stuff now.” Low-wage workers are getting sharp raises. Inflation is eating them up. via Greg Ip WSJ

 Source: BLS BLS

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