Investors are keen to declare victory for the Federal Reserve in the war on inflation. But the June CPI data is only encouraging for bond bulls if you look at the world in a vacuum.
Yes, there was a lot to like in last week’s report: Headline CPI rose just 0.2% and the year-over-year rate fell 1% to 3.0%, the lowest since March 2021. Core inflation rose 0.2%, to 4.8% y/y, down from 5.3% in May and the peak of 6.6% in September 2022.
Not so fast, though. Base effects were huge factor and that means comparisons will be tougher going forward . And the composition of the decline showed volatile categories accounted for the bulk of the drop. That means future inflation relief might not be so linear. And further improvement in supercore inflation, heavily influenced by the services sector, will […]
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