US CPI advances strongly in June

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Consumer prices as well as producer price index for the month of June showed a strong pace of gains. The data suggested that the underlying momentum is only going to get stronger. Both consumer and producer prices were seen rising to a six year high.

The data comes as Fed officials continue to tighten monetary policy.

U.S CPI at 2.9% in June

Data from the U.S. labor department showed that consumer prices in the United States advanced 2.9% in June on an annual basis. On a month over month basis, CPI was seen rising 0.1%. This was however slightly below the median consensus which forecast a 0.2% increase on the month.

The 2.9% CPI growth was the highest in six years. The core CPI which excludes the volatile food and energy prices were seen rising 2.3% on an annualized basis.

The annual inflation was seen offsetting the annual wage growth putting the real earnings to a flat reading in June.

The gain in consumer prices came from rising commodity prices in the energy sector. Gasoline prices in the consumer sector were seen rising 0.5% on the month. Compared to the year before energy prices surged strongly by 24%.

The price of goods and services also increased during the month. Shelter and rental costs advanced 0.1% on the month to rise to an annual pace of 3.4%. Food prices were also seen advancing 0.2% on a month over month basis in June.

However, on an annual basis, food prices were seen to be muted, rising just 1.4%. The rising consumer prices data comes following the  producer prices index data which was also seen to be stronger during the month.

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U.S. producer prices rises to a 6-year high

Earlier in the week, the producer price index data released showed that price pressures at factory gate increased. Data from the U.S. Labor department showed that in June, the annual pace of gains in PPI hit a six year high.

The Labor department data showed that producer prices index rose 0.3% on a month over month basis in June. This was after PPI increased 0.5% in May. The data beat estimates where economists forecast an increase of 0.2%.

The PPI data showed that the gains came due to higher energy prices. Energy prices alone rose 0.8% in June. This was however a moderate pace of increase after energy prices surgged 4.6% in the month of May.

Excluding the food and energy prices, the core PPI data showed an increase of 0.2% in June. This was also higher than the estimates which forecast a 0.2% increase.

The gains in the core PPI came due to an increase in price for final services which rose 0.4%. This was an increase from May’s print of 0.3%.

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Other sectors that contributed to the core PPI’s increase were the price for final demand transportation which increased 0.5%.

On an annualized basis, headline producer prices index were seen rising 3.4% on the year ending June. This was a biggest 12-month jump since November 2011 when PPI rose 3.7%. The core PPI on the other hand rose to an annualized basis of 2.8% in June compared to May’s reading of 2.4%

The uptick in the PPI data signaled that there was a significant increase in the demand for producer prices. The PPI was seen rising to a new six year high with gains coming from services sector.

Further to this, the U.S. trade tariffs on steel and aluminum was also seen pushing the price at factory gate higher.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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