US CPI: Fed still concerned despite rebound

Data released today showed the Consumer Price Index rose 0.1% (vs 0.0%) in June and the core index 0.3%. Analysts at Wells Fargo point out core’s gain makes up for some exaggerated weakness in recent months. The see inflation is getting back on track to meet the target of the Federal Reserve, but not fast enough.

Key Quotes:

“After a string of subdued readings, core inflation bolted back in June. Prices for goods and services rose 0.3% (0.29% before rounding), ending a four-month run of 0.1% gains. The increase reflects payback for undue softness in recent months, rather than the start of a sharp pickup in the trend.”

“Gains in core inflation looked more in line with recent trends.”

“Today’s report is consistent with inflation climbing back toward the FOMC’s target in the coming months. But Fed officials are increasingly concerned about the generalized weakness in inflation that has persisted this expansion. Although it is starting to get back on track, Fed officials have grown impatient over the time it is taking inflation to return to target on a sustained basis.”

“Consumers’ long-term inflation expectations are at a historic low, while market-based measures have moved lower over the past year.”

“We continue to look for the FOMC to cut the fed funds rate 25 bps at its meeting later this month, in no small part due to the cumulative weakness in inflation.”

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