Breaking: US CPI inflation declines to 3% in June vs. 3.1% anticipated

Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3% on a yearly basis in June from 4% in May, the US Bureau of Labor Statistics (BLS) reported on Wednesday. This reading came in slightly below the market expectation of 3.1%.

Follow our live coverage of the US inflation report and the market reaction.

Further details of the publication revealed that the Core CPI inflation, which excludes volatile food and energy prices, dropped to 4.8% from 5.3%. On a monthly basis, the CPI and the Core CPI both rose 0.2% and these figures fell short of analysts' estimates.

"The index for shelter was the largest contributor to the monthly all items increase, accounting for over 70% of the increase, with the index for motor vehicle insurance also contributing," the BLS noted in its press release. "The food index increased 0.1% in June after increasing 0.2% the previous month."

Economists at Commerzbank think that the pressure on the US Federal Reserve for additional rate hikes eased noticeably after the CPI data:

"In the US, there are increasing signs that inflationary pressure is easing. In June, consumer prices rose by only 0.2% compared with the previous month. The core rate (which excludes energy and food), which is important as a measure of the underlying trend, was also only 0.2%, the smallest increase since February 2021."

"While the Federal Reserve is still likely to raise interest rates again at the end of the month, the data support our view that this should be the last hike."

Market reaction

The US Dollar (USD) came under renewed selling pressure following softer than expected inflation reading. At the time of press, the US Dollar Index, which tracks the USD's performance against a basket of six major currencies, was trading at its lowest level since early May slightly above 101.00.

Commenting on the US CPI data, "markets always want more – and this time they have received what they wished for," noted FXStreet Analyst Yohay Elam. "Not only has underlying inflation risen by only 0.2% MoM in June, but the yearly figure crashed to 4.8% YoY.  That confirms the disinflationary trend. While the US Dollar could still bounce in a pullback, the direction is clear – down."

United States Consumer Price Index (MoM)

The Consumer Price Index released by the US Bureau of Labor Statistcs is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish). Read more.

Next release: Thu Aug 10th, 2023 12:30
Frequency: Monthly
Source: US Bureau of Labor Statistics

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank's directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.


This section below was published at 06:00 GMT as a preview of the US inflation report.

  • Consumer Price Index in the US is forecast to rise 3.1% in June, down sharply from the 4% increase recorded in May.
  • Core CPI inflation is foreseen at 5% YoY in June, compared to 5.3% in May.
  • US CPI inflation report is set to influence the Fed’s rate outlook and the US Dollar’s valuation.

The highly-anticipated Consumer Price Index (CPI) inflation data for June will be published by the US Bureau of Labor Statistics (BLS) on July 12 at 12:30 GMT. 

The United States Dollar (USD) has been struggling to find demand in the lead-up to the crucial US inflation report, following a mixed June jobs report. Although the Federal Reserve (Fed) is widely anticipated to raise its policy rate by 25 basis points in July, markets are not yet convinced that the US central bank will opt for additional rate hikes later this year.

The US CPI inflation data could influence the Fed’s rate outlook and trigger a significant reaction in the USD. Investors will scrutinize the underlying details of the report to figure out whether sticky parts of core inflation show signs of softening.

What to expect in the next CPI data report?

The US Consumer Price Index data, on a yearly basis, is expected rise 3.1% in June, a noticeable deceleration when compared with the 4% increase recorded in May. Similarly, the Core CPI figure, which excludes volatile food and energy prices, is expected to advance 5%, a much more moderate pace than May’s 5.3% growth.

The monthly Consumer Price Index is forecast to rise 0.3% in June, having inched 0.1% higher previously. The Core CPI is anticipated to increase 0.3% in the same period. Since annual CPI readings are subject to base effects, markets are likely to react to changes in monthly figures.

The Federal Reserve Bank of New York's monthly Survey of Consumer Expectations showed on Monday that the US consumers' one-year inflation expectation dropped to the lowest level since April 2021 at 3.8% in June from 4.1% in May. This headline caused the USD to come under renewed selling pressure at the beginning of the week. Meanwhile, Fed policymakers have acknowledged progress in inflation in their recent comments, while reiterating the need for additional policy tightening.  

"We are quite attentive to bringing inflation down to target," Federal Reserve Vice Chair for Supervision Michael Barr said on Monday and added that they still have “a bit of work to do.” Similarly, Cleveland Fed President Loretta Mester noted that they will need to tighten the policy “somewhat further” to lower inflation. 

Analysts at TD Securities provide a brief preview of the key macro data and explain: “Our estimates for the CPI report suggest core price inflation likely lost meaningful momentum in June: We expect it to print 0.2% m/m — the slowest monthly pace for the core since 2021. We also look for a similar 0.2% gain for the headline. Importantly, we expect the report to show that core goods prices shifted to deflation, while shelter-price gains likely slowed down again. Note that our unrounded core CPI inflation forecast is 0.23%, so we judge the risk of a 0.3% m/m advance to be larger than that of 0.1%.”

When will be the Consumer Price Index report and how could it affect EUR/USD?

The broad-based USD weakness ahead of the CPI data suggests that markets may have already priced in a soft inflation report for June. Hence, a ‘buy the rumor, sell the fact’ market reaction could limit the USD’s losses in the near term, even if the CPI prints confirm further weakening of price pressures. Nevertheless, a smaller-than-forecast increase in monthly Core CPI is likely to make it difficult for the USD to outperform its rivals in a consistent way. 

On the other hand, an upside surprise in core inflation could trigger a rebound in the USD and weigh on risk-sensitive assets.

Previewing the potential market reaction to CPI data, “a welcome slowdown of Core CPI to 0.2% MoM or weaker would be what markets are craving”, noted FXStreet Analyst Yohay Elam. “It would provide firmer evidence that the inflation genie is getting back to the bottle.”  

“The US Dollar would fall in such a scenario, while Gold and stocks would advance” Elam added.  “A read of 0.4% or higher would be disappointing, showing that while prices of goods such as cars are down, costs of labor-intensive services and even housing are refusing to come down. It would raise expectations for a second post-pause Fed hike.”

Meanwhile, Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains: 

“EUR/USD closed the last last three trading days above the 100- and the 50-day Simple Moving Averages (SMA). Following that rally, the pair returned with the long-term ascending regression channel coming from September and the Relative Strength Index (RSI) rose to 60, reflecting the buildup of bullish momentum.”

“1.1095/1.1100 (2023 high, psychological level) aligns as first resistance ahead of 1.1150 (mid-point of the ascending regression channel) and 1.1200 (psychological level). On the downside, 1.0920 (20-day SMA, lower-limit of the ascending regression channel) forms key technical support. A daily close below that level could opn the door for an extended slide toward 1.0860 (50-day SMA) and 1.0830 (100-day SMA).

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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