Is the United States experiencing "negative CPI" on a month-on-month basis for the first time in six years? But that's not the point tonight
Tonight, the attention of the global market will once again focus on a crucial US economic data - the US Bureau of Labor Statistics will release the June CPI report at 20:30 Beijing time. As the interest rate market estimates that the probability of the Federal Reserve raising interest rates in July is close to 50%, this report is likely to determine the direction of the Federal Reserve's policy. According to economists surveyed by the media, it is generally predicted that the drop in gasoline prices is expected to turn the month-on-month CPI increase into negative value in June, which will be the first time in six years. However, this may not mean that the inflation crisis is over.
Tonight, the attention of the global market will once again focus on a crucial US economic data - the US Bureau of Labor Statistics will release the June CPI report at 20:30 Beijing time. As the interest rate market estimates that the probability of the Federal Reserve raising interest rates in July is close to 50%, this report is likely to determine the direction of the Federal Reserve's policy. According to economists surveyed by the media, it is generally predicted that the drop in gasoline prices is expected to turn the month-on-month CPI increase into negative value in June, which will be the first time in six years. However, this may not mean that the inflation crisis is over. Excluding volatile food and energy prices, year-over-year core inflation is expected to remain well above the Fed's target. U.S. CPI change chart (final value): The month-on-month increase was negative last time, and it dates back to the 2020 COVID-19 epidemic. Some industry insiders pointed out that the good news tonight is that inflationary pressures have at least temporarily stabilized in June, and the surge in oil prices in early 2026 does not appear to have spread to other parts of the economy except for the most energy-sensitive sectors. But the more critical factor now may be how other variables in the inflation picture will change... JP Morgan chief economist Bruce Kasman wrote that June's CPI data should confirm the good news on overall inflation: the surge in energy prices that pushed overall CPI to more than 4% in May is now reversing. However, core inflation may send a mixed message. Due to the recent strong performance of the labor market, the market generally believes that the Fed is currently more concerned about stubborn inflation than the labor market. Industry analysts also generally say that CPI data is currently more critical to the Fed's policymaking than non-farm payrolls. The bond market is currently pricing in one to two rate hikes by the Federal Reserve before the end of the year. With the renewed conflict in the Strait of Hormuz causing oil prices to rise again, some analysts believe that the probability of raising interest rates is further increasing. The following is the latest estimate of tonight's CPI data from industry organizations: CPI in June is expected to increase by 3.8% year-on-year, compared with an increase of 4.2% in May. The CPI in June is expected to decrease by 0.1% month-on-month, compared with an increase of 0.5% in May. Core CPI is expected to increase by 2.8% year-on-year in June, compared with an increase of 2.9% in May. Core CPI is expected to increase by 0.2% month-on-month in June, compared with an increase of 0.2% in May. As shown in the figure below, the median estimate of some institutions calculated by Nick Timirao of "New Federal Reserve News Agency" even tends to believe that the month-on-month decline in CPI in June will reach -0.2%. Gasoline prices will drag down overall CPI in June There is no doubt that the main driver of overall CPI in June is expected to be the decline in gasoline prices, which stemmed from the collapse in oil prices after the memorandum to end the war with Iran was reached. UBS economists expect gasoline and energy prices to fall more than 9% for the month. According to data from the American Automobile Association, since peaking on May 20, gasoline prices across the United States have fallen by 76 cents per gallon, a decrease of 17%. This factor would push June's CPI back by about 0.42 percentage points, they wrote. Overall, "the breadth of inflationary pressures is close to historical norms," wrote Christopher Hodge, chief economist at Natixis. "The energy shock from the Iran war has not been broadly transmitted to core commodity prices, and while there may still be some transmission pressures, we view these as both weak and short-lived." Hodge himself predicts that the overall CPI will fall by 0.07% month-on-month in June, and the year-on-year increase will fall back to 3.90%. He expects core CPI to rise 0.24% month-on-month and 2.80% year-on-year. Economists at Deutsche Bank are focusing on the pass-through effect of lower energy prices: "We expect price stickiness on the downside to lead to relatively modest declines in air tickets and express fees, but if lower oil prices are passed through to consumers more quickly, these categories may face more significant downside risks."
Of course, investors need to be reminded that the U.S.-Iran memorandum of understanding that led to the sharp drop in U.S. gasoline prices in June was on the verge of collapse last week. Since then, the United States’ new round of air strikes against Iran over the weekend and Iran’s proposal to block the Strait of Hormuz have pushed up oil prices. Although the fall in energy prices in June eased the pressure on the overall CPI data, it only reflects a microcosm of past price levels, and the oil price levels at that time may no longer be applicable now. July's CPI data - which will be released in August - will likely still differ significantly from tonight's data. Investors who interpret weak energy market data in June as signs of cooling inflation and imminent interest rate cuts could be making a major mistake. The Fed itself is expected to remain focused on what's next for energy markets. The highlight of tonight will be Core Data? Therefore, given that the current fluctuations in the energy market are still highly uncertain, the focus of tonight's US June CPI data may still be on changes in core data. JPMorgan's Kasman said that while energy's transmission effect on core inflation has been limited so far, service sector inflation remains high and core inflation appears to be sticky at around 3%. Even though core inflation peaked earlier than expected, indicators in the survey - including Purchasing Managers' Index (PMI) prices, delivery times, supply chain indicators and transportation costs - still point to increasing pressure on the supply of core commodities. Economists say one new item to watch is electronics prices. Later in June, Apple was forced to raise prices on MacBooks and iPads. Although this occurred at the end of the month and may not have been captured in time by June's CPI data, it still reflects the upward price pressure that the AI infrastructure boom has brought to the entire hardware industry. According to the Federal Reserve's June minutes, the boom in AI investment has been listed as one of the three forces pushing up inflation, along with wars in the Middle East and tariffs. These forces may keep prices high and prompt the Federal Reserve to turn to raising interest rates. Goldman Sachs economist Megan Peters calculated in the latest report that the triple effects of AI-driven memory price surges, software price increases, and electricity price increases have now increased the U.S. core PCE year-on-year inflation rate by more than 0.2 percentage points, and this contribution is expected to rise to 0.5 percentage points by the end of the year. In addition, the impact of the tariffs imposed by the Trump administration is expected to continue to be reflected in the latest CPI data. Jeff Roach, chief economist at LPL, said high import costs and energy costs are "confounding market expectations" and are causing higher labor and service costs in the health care sector in particular. "When we think about doctor visits, dentist visits and eyeglasses, some of these commodity prices are coming into play. As the cost of importing these products increases, the prices of these professional services are starting to trend upward." In its latest CPI forecast, Goldman Sachs predicts that core CPI will increase by 0.17% month-on-month in June, with a year-on-year increase of +2.76%. Goldman Sachs highlighted four key sub-trends expected in the report: soft auto inflation is expected; a mild inflation reading in the housing category; a modest rise in the travel services category; and potential residual seasonality that will bring downward pressure. Goldman Sachs pointed out that it expects core CPI month-on-month growth to hover around 0.2% in the next few months, reflecting the continued slowdown in inflation in the housing category, as well as the easing of upward pressure on the travel services category from rising jet fuel prices and the World Cup; however, if oil market turmoil and related oil price increases are more prolonged than expected, risks will be tilted to the upside. Will tonight's data determine the direction of the Fed's decision this month? It is worth noting that the CPI data release comes just hours before Federal Reserve Chairman Warsh’s semi-annual congressional testimony. The performance of inflation data may not only affect the Federal Reserve’s decision-making in the July interest rate resolution, but may also directly determine the market’s pricing logic for the Federal Reserve’s monetary policy in the second half of the year.
Pricing in the interest rate swap market showed that traders on Monday had significantly increased their bets on the Federal Reserve raising interest rates by 25 basis points in July after the United States launched a series of new strikes on Iran over the weekend. The latest pricing shows that the probability of the Federal Reserve raising interest rates by the end of this month is close to 50%, up from less than 40% earlier on Monday. At the same time, the probability that the Federal Reserve will raise interest rates at least twice before the end of this year has jumped to 56% from 34% at the beginning of this month. This also means two interest rate hikes - becoming the most likely interest rate change scenario for the Federal Reserve this year. Regarding tonight's CPI data, Fed Governor Waller said on Monday that if the upcoming data shows that inflation continues to be well above the 2% target, the Fed may need to raise interest rates "in the near future." Waller bluntly stated that the Fed's next move will depend on this week's inflation data - if the data moves in an adverse direction, the Fed should not "take it lightly." Economists at Deutsche Bank said "mixed" economic progress since the last Fed meeting could prompt some policymakers to take a more hawkish stance. But LPL’s Roach doesn’t think the Fed will raise interest rates anytime soon. "I think the discussion about maintaining a hawkish bias will continue," he said. "I don't think they will raise rates in July, and if inflation improves in the next few months, it is possible that they will keep rates unchanged in the next few meetings." The Fed is currently weighing a number of economic indicators to set the tone for policy for the rest of the year. Judging from the schedule, after the release of CPI data, another major financial event tonight will undoubtedly be Federal Reserve Chairman Warsh’s trip to Capitol Hill at 22:00 Beijing time. Federal Reserve observers will pay close attention to his views on inflation, the labor market and economic growth - and the interaction between these factors and interest rates. (
Of course, investors need to be reminded that the U.S.-Iran memorandum of understanding that led to the sharp drop in U.S. gasoline prices in June was on the verge of collapse last week. Since then, the United States’ new round of air strikes against Iran over the weekend and Iran’s proposal to block the Strait of Hormuz have pushed up oil prices. Although the fall in energy prices in June eased the pressure on the overall CPI data, it only reflects a microcosm of past price levels, and the oil price levels at that time may no longer be applicable now. July's CPI data - which will be released in August - will likely still differ significantly from tonight's data. Investors who interpret weak energy market data in June as signs of cooling inflation and imminent interest rate cuts could be making a major mistake. The Fed itself is expected to remain focused on what's next for energy markets. The highlight of tonight will be Core Data? Therefore, given that the current fluctuations in the energy market are still highly uncertain, the focus of tonight's US June CPI data may still be on changes in core data. JPMorgan's Kasman said that while energy's transmission effect on core inflation has been limited so far, service sector inflation remains high and core inflation appears to be sticky at around 3%. Even though core inflation peaked earlier than expected, indicators in the survey - including Purchasing Managers' Index (PMI) prices, delivery times, supply chain indicators and transportation costs - still point to increasing pressure on the supply of core commodities. Economists say one new item to watch is electronics prices. Later in June, Apple was forced to raise prices on MacBooks and iPads. Although this occurred at the end of the month and may not have been captured in time by June's CPI data, it still reflects the upward price pressure that the AI infrastructure boom has brought to the entire hardware industry. According to the Federal Reserve's June minutes, the boom in AI investment has been listed as one of the three forces pushing up inflation, along with wars in the Middle East and tariffs. These forces may keep prices high and prompt the Federal Reserve to turn to raising interest rates. Goldman Sachs economist Megan Peters calculated in the latest report that the triple effects of AI-driven memory price surges, software price increases, and electricity price increases have now increased the U.S. core PCE year-on-year inflation rate by more than 0.2 percentage points, and this contribution is expected to rise to 0.5 percentage points by the end of the year. In addition, the impact of the tariffs imposed by the Trump administration is expected to continue to be reflected in the latest CPI data. Jeff Roach, chief economist at LPL, said high import costs and energy costs are "confounding market expectations" and are causing higher labor and service costs in the health care sector in particular. "When we think about doctor visits, dentist visits and eyeglasses, some of these commodity prices are coming into play. As the cost of importing these products increases, the prices of these professional services are starting to trend upward." In its latest CPI forecast, Goldman Sachs predicts that core CPI will increase by 0.17% month-on-month in June, with a year-on-year increase of +2.76%. Goldman Sachs highlighted four key sub-trends expected in the report: soft auto inflation is expected; a mild inflation reading in the housing category; a modest rise in the travel services category; and potential residual seasonality that will bring downward pressure. Goldman Sachs pointed out that it expects core CPI month-on-month growth to hover around 0.2% in the next few months, reflecting the continued slowdown in inflation in the housing category, as well as the easing of upward pressure on the travel services category from rising jet fuel prices and the World Cup; however, if oil market turmoil and related oil price increases are more prolonged than expected, risks will be tilted to the upside. Will tonight's data determine the direction of the Fed's decision this month? It is worth noting that the CPI data release comes just hours before Federal Reserve Chairman Warsh’s semi-annual congressional testimony. The performance of inflation data may not only affect the Federal Reserve’s decision-making in the July interest rate resolution, but may also directly determine the market’s pricing logic for the Federal Reserve’s monetary policy in the second half of the year.
Pricing in the interest rate swap market showed that traders on Monday had significantly increased their bets on the Federal Reserve raising interest rates by 25 basis points in July after the United States launched a series of new strikes on Iran over the weekend. The latest pricing shows that the probability of the Federal Reserve raising interest rates by the end of this month is close to 50%, up from less than 40% earlier on Monday. At the same time, the probability that the Federal Reserve will raise interest rates at least twice before the end of this year has jumped to 56% from 34% at the beginning of this month. This also means two interest rate hikes - becoming the most likely interest rate change scenario for the Federal Reserve this year. Regarding tonight's CPI data, Fed Governor Waller said on Monday that if the upcoming data shows that inflation continues to be well above the 2% target, the Fed may need to raise interest rates "in the near future." Waller bluntly stated that the Fed's next move will depend on this week's inflation data - if the data moves in an adverse direction, the Fed should not "take it lightly." Economists at Deutsche Bank said "mixed" economic progress since the last Fed meeting could prompt some policymakers to take a more hawkish stance. But LPL’s Roach doesn’t think the Fed will raise interest rates anytime soon. "I think the discussion about maintaining a hawkish bias will continue," he said. "I don't think they will raise rates in July, and if inflation improves in the next few months, it is possible that they will keep rates unchanged in the next few meetings." The Fed is currently weighing a number of economic indicators to set the tone for policy for the rest of the year. Judging from the schedule, after the release of CPI data, another major financial event tonight will undoubtedly be Federal Reserve Chairman Warsh’s trip to Capitol Hill at 22:00 Beijing time. Federal Reserve observers will pay close attention to his views on inflation, the labor market and economic growth - and the interaction between these factors and interest rates. (