June’s headline CPI is expected to be hotter than the May report, but consumer inflation may have finally peaked given the drop in oil and gasoline prices in July.
The headline CPI is expected to rise 1.1% compared to 1% in May, according to Dow Jones. On an annual basis, the CPI is expected to rise by 8.8%, higher than It recorded 8.6% in May, the highest since 1981.
On the other hand, core inflation is expected to continue to slow, and is now slowing for the third month. Excluding energy and food, core CPI for June was expected to rise 0.5%, compared to 0.6% in May. That would be a 5.7% jump year-over-year in June, down from 6% in May. Core CPI peaked at 6.5% in March.
The Consumer Price Index will be released at 8:30 AM ET Wednesday.
And while economists expect June to finally be the hottest month for core consumer inflation, they also warn that it will depend on what happens to energy prices, and that remains unknown.
Since the beginning of the month, West Texas Middle Oil futures fell 9%, and RBOB . gasoline futures decreased by 7.6%. At the pump, unleaded gasoline hit a record $5,016 per gallon on June 14 and has since fallen to $4.65 per gallon, According to AAA.
“I think the question later this year is what if this is just a near-term peak and not an absolute peak?” said Michael Gaben, head of US economics at Bank of America. “We can’t rule that out completely. We don’t know how energy markets will respond to the European ban. We don’t know how accurately the Europeans will meet their deadline.”
European countries pledged to End their use of Russian oil by the end of the year. The Russian invasion of Ukraine came as supply chain problems and staff shortages have already driven prices up in the wake of the pandemic, and the jump in commodity prices has exacerbated already high prices.
Tom Simmons, a money market expert at Jefferies, said the June CPI will be a mixed number, and sees some downside risks to the core inflation outlook.
“It has boosted several fundamental things in recent months, such as airline tickets. It didn’t increase as much in June as it did in April and May,” he said. “Also, we have some evidence that there is some ductility in other commodities – furnishings and electronics.”
Simmons said retailers are indicating they miscalculated some stocks. “That leads to some reductions, or at least, no more increases,” he said.
Economists expect shelter costs to continue to show solid gains, adding to both headline and core inflation. Simmons said energy should add about 0.7% to the headline figure, and food prices to rise 1% through June.
As for the Federal Reserve, economists say the hot number should bolster the view that the central bank will raise another 75 basis points on top of June’s three-quarter point increase. The base point is 0.01%.
“If it came higher than expected, we would feel that was the peak for sure,” Simmons said. He noted that if it declines, markets will also be encouraged that the pace of inflation may slow. “Either way, we’re going to end up with some kind of relief demonstration,” he said.
There are signs that transportation costs, such as container shipping costs and airline costs, are declining, and supply chain problems are fading, Gaben said. But he said high inflation has affected consumers.
“The CPI should be looked at in conjunction with retail sales data later this month,” Gaben said.
Economists expect retail sales in June to rise 0.9%, up from a 0.3% decline in May, according to Dow Jones. Retail sales data will be released on Friday. Gasoline sales are expected to be a large part of major retail sales gains.