CPI moderates with downside surprise but Fed still likely to hike rates

Headline CPI came in at 3%, lower than the previous months 4%, and core CPI was also lower at 4.8% (5.3% - previous). The monthly figures for both headline and core CPI were 0.2% each, which is a remarkable 2.43% annualised.

The June deceleration can be attributed, at least in part, to a base effect. The comparison of last month's prices with the inflated prices of June 2022, when there was a notable surge in petrol prices and peak inflation was witnessed, contributed to this slowdown.

Nevertheless, the Fed's rate hiking cycle is yielding results with the slowdown in the core CPI numbers.

Today's CPI report is the final batch of inflation data that the Fed will have access to before it meets 25-26 July. As it stands, the CME FedWatch Tool has the probability of a 25bps hike at 92%. This is not surprising given the strong labour market and the fact the inflation is still above the Fed's 2% target.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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