June CPI Shows Inflation Has Arrived — Or Has It?

June’s Consumer Price Index (CPI) rose 0.3%, as expected, in June on the headline report. The headline CPI is down from 0.4% in May. The core rate, ex-food and energy, rose by 0.1%, versus the Bloomberg expectation of 0.2% higher. May’s core CPI was up by 0.3%.

Here is where the worry comes into play. The year-over-year changes are signaling that inflation may now be much closer to the Federal Reserve’s 2.0% to 2.5% target. Headline CPI was up 2.1% from a year ago and core CPI was up 1.9% from a year ago.

We have been tracking higher producer prices as well, and the worry is that higher production costs will translate into higher consumer prices.

Crude 0il has bounced off the $100 per barrel mark to almost $103, but that is down from peaking over $106 in mid-June. The long and short of the matter is that energy prices may have ticked lower in the reading for the month ahead. Still, gasoline was up 3.3% in the monthly reading. Food prices were up only 0.1%. Tobacco, drugs and apparel posted gains of 0.5% in the monthly readings.

What investors should take away from the June CPI report is that the inflation hawks and the doves all have good stories to tell now. This should act as the backdrop for some very confusing and diverging Fed president speeches over the next couple of weeks ahead.

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