US: Inflation quickens in June – UOB Group
|US headline CPI rose 0.3% m/m (the most since Jan) translating to 2.7% y/y increase in June, up from 2.4% in May, helped by a rebound in energy prices and higher food costs. Excluding food and energy, US core CPI rose a lesser 0.2% m/m but still translated to a 2.9% y/y increase in June, matching Bloomberg forecasts and up from 2.8% in May, UOB Group's Senior Economist Alvin Liew report.
Tariffs bite but not deeply
Shelter costs remained the main contributor to core inflation, but the pace was tame. Meanwhile, core goods inflation (excluding food and energy) rose by 0.2% m/m (0.6% y/y) in June from 0.0% m/m, 0.3% y/y in May, suggesting a growing impact from President Trump’s tariffs and product specific tariffs. It was notable the rise in goods inflation was partly offset by the disinflation of cars (both old and new) while services inflation re-accelerated slightly in June.
"We still view the overall inflation direction remains tilted towards the upside due to the impact from tariffs. We keep our 2025 US headline CPI inflation forecast at 3.6% and our core CPI inflation is also unchanged at a higher 3.8%. We continue to assume the tariff-driven inflation to be a one-time price shock before coming off sometime next year."
"The June CPI prints showed clearer marks of tariff-induced price increases but not material yet, allowing the Fed to continue espousing the message of patience amidst tariff uncertainty. We still expect the Fed’s wait-and-see approach to translate to a pause in the Jul FOMC. We continue to hold our view of three 25-bps cuts in 2025 due to growth concerns, one each in September, October and December FOMC, bringing the FFTR to 3.50-3.75% by end-2025."
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