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THE AFTERMATH OF US CPI REPORT OF JUNE

Harvest Global Markets :

US June inflation reached to four decades high at 9.1%, considered as the pressure for Fed to reconsider aggressive monetary policy decision on 27th July FOMC meeting. The numbers also exceeded analysts’ forecast, which was 8.8% compared to the previous number of 8.6%. The Bureau of Labor Statistics mentioned that price rose 1.3% MoM, was itself the biggest rise since 2005. A sudden rise in inflation was due to higher prices of food, gasoline and shelter in the month of June. Core inflation also increased to 0.7% MoM, biggest monthly gain in the year so far.

According to Bureau of Labor Statistics, the rise was a measure of “Broad-based” increased in food, gasoline and housing, that accounted for approximately half of monthly increase. Surprisingly, prices of used vehicles rose by 1.6% compared to largest increase of 1.8% on May. Annual inflation rate largely affected by base effects, suggesting monthly rise practice as pressure on prices and deplete economic growth gradually.

U.S. stock futures slumped and bond yields rose on the news, which pointed to a worse and more persistent problem with inflation than previously assumed. It’s the latest in a succession of negative surprises from the consumer price index, which Wall Street economists have repeatedly underestimated in the last year. Commodity prices falling sharply since then and wage growth moderating in recent months, the outlook for inflation does not look as bleak as it did a month ago. Accordingly, speculation about a 100 bp hike this month looks to be misplaced.

On the other side, US President Joe Biden considered latest CPI report as out dated, he quoted decline in energy prices from mid to end of June, which is the major contributor of the index. He said inflation should ease on the recent decline in gas prices that was not mentioned in June’s inflation report.

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