Forexlive Americas FX news wrap 15 Jul: US CPI data shows signs of tariff inflation

U.S. consumer prices rose modestly in June, with the headline CPI increasing by 0.3% month-over-month, matching expectations. The core CPI, which excludes food and energy, rose by 0.2% MoM, coming in below the 0.3% forecast. Unrounded figures showed headline CPI at 0.287% and core CPI at 0.228%, reflecting slight nuance around the rounded results.

On a year-over-year basis, headline CPI accelerated to 2.7% from 2.4% in May, while core CPI ticked up to 2.9%, just below the 3.0% estimate and slightly higher than May’s 2.8%. Key contributors to the monthly increase included shelter (+0.2%), energy (+0.9%), and food (+0.3%). Gasoline prices rose 1.0%, while both food at home and away from home edged higher.

Within core components, gains were seen in household furnishings, medical care, recreation, apparel, and personal care, while used and new vehicles and airline fares declined. On a yearly basis, food prices were up 3.0%, and energy prices were down 0.8%, indicating a mixed picture across major categories.

After the initial reaction, the number crunchers broke out the core goods CPI which rose by 0.7% its largest gain in nearly 2 years. That rise was proof of tariff induced inflation, and implied a core PCE increase of 0.35% (with the PPI data to be released tomorrow either increasing or decreasing that estimate).

On the plus side is that despite the 0.7% gain, the overall CPI rose by 0.2/0.3%. So inflation remains but not accelerating sharply, giving the Fed more data to assess as it weighs future policy moves.

However, what we do know is not all the tariff increases are being absorbed by the sellers/corporations. With their in my at their MIR car the keys are in my car right

The concerns about tariff inflation , pushed yields higher with the 30 year heading back above the 5.0% level. A look at the yield curve shows:

• 2-year yield 3.952%, +5.4 basis points
• 5-year yield 4.050%, +6.7 basis points
• 10 year yield 4.489%, +6.2 basis points
• 30 year yield 5.021%, +4.9 basis points

Remember back in June, the two-year was near 4%, the 10- year was near 4.5% and the 30 year was near 5.0% – nice round numbers. Yields are back toward those levels after the two-year dipped to a low of 3.697% at the beginning of July,, the 10 year dipped to a low of 4.1875, and the 30 year to a low of 4.733%. The run back up in yields is a negative for housing.

Although Feds Bowman, Barkin, and Collins were scheduled to speak today, Bowman did not address interest rate policy or the economy. Feds Barkin commented that tariff inflation was likely to lead to more price pressure. Feds Collins gave the most review of economic policy/Fed policy from her perspective. She said:

• The U.S. economy remains in a “good place,” allowing the Federal Reserve time to assess incoming data before making its next interest rate decision.
• Emphasized the need for the Fed to be “actively patient” amid current uncertainty, noting that setting policy is especially challenging in this environment.
• Acknowledged that tariffs are expected to lift inflation through the second half of 2025, with core inflation projected to reach around 3% by year’s end.
• While she said tariffs may temporarily weigh on the economy and slow hiring, the impact could be limited due to strong household and business balance sheets and healthy profit margins.
• She acknowledged, that core goods inflation is already showing some signs of tariff-related pressure, but broader inflation risks must be viewed in a long-term context.
• She stressed that the Fed’s dual mandate—price stability and maximum employment—requires focusing on longer-term goals, especially as the exact level of full employment is uncertain.
• She also observed early signs of slowing labor demand, in part due to a cooling in labor supply growth, reinforcing the need for a measured approach to policy adjustments.

US stocks were discouraged by the higher interest rates, but some sectors benefited. More specifically, the chip sector benefited after restrictions on sales of Nvidia chips to China were lifted. That helped 2% Nvidia shares up over 4%. AMDthe shares were also a beneficiary with a gain of 6.41% and Broadcom added 1.94%. Super microcomputer also fitted from combination of the chip sales and the news yesterday that Facebook was spending hundreds of billions of dollars on AI efforts. That has to help their business. Shares of SMCI rose 6.92%,.

Looking at the major indices, the major indices closed near session lows after giving up all or most of the gains:

• Dow industrial average fell -0.98%
• S&P index fell -0.40%
• NASDAQ index rose 0.18%

Crude oil was modestly lower. The point also fell sharply by $3300 or -2.77%, to $116,592. That comes a day after reaching all-time high price of $123,236.