June CPI Forecasts Show More Progress on Inflation

Forecasts for the June Consumer Price Index report agree that overall inflation continued to soften in June, thanks to falling prices for energy and used cars.

Inflation has fallen dramatically from its peak of 9.1% in 2022. Still, the Federal Reserve has said it is awaiting more confidence that price pressures are easing toward its target before it begins to cut interest rates and loosen monetary policy. After May’s report brought good news, market watchers expect this report to further bolster that confidence. “June is going to be another good month,” says José Torres, senior economist at Interactive Brokers.

Economists anticipate that consumer prices rose 0.1% on a monthly basis in June after remaining flat in May, according to FactSet’s consensus estimates. That would bring the inflation rate down from 3.3% to 3.1% on an annual basis. Core inflation, which excludes volatile food and energy prices, is expected to remain slightly higher. Analysts are anticipating 0.2% growth on a monthly basis in June and 3.4% growth on an annual basis, according to FactSet.

Bank of America analysts also forecast 0.1% overall inflation and 0.2% core inflation. “While this is not quite as low as May,” they wrote last week, “it would be a good print for the Fed.”

June CPI Report Highlights

• CPI report release date and time: Thursday, July 11 at 8:30 a.m. EST
• The CPI is forecast to rise 0.1% in June after remaining flat in May.
• Core CPI is forecast to rise 0.2% in June after rising the same amount in May.
• The CPI year over year is forecast to rise 3.1% in June after rising 3.3% in May.
• Core CPI year over year is forecast to rise 3.4% in June after rising the same amount in May.

Torres expects that food prices, medical care, and transportation costs ticked up in June. Analysts are also anticipating higher car insurance prices. Meanwhile, Torres believes relief will come from falling energy costs (which include gasoline and jet fuel) and energy services prices (which include electricity). He also predicts lower prices for new and used cars and apparel.

Bank of America analysts expect overall core goods prices to keep falling, partly thanks to those lower new car prices. They wrote that rising inventories of new cars are leading to more discounts and customer incentives from manufacturers. They added that core goods prices may go up again if shipping costs rise in the months ahead.

Shelter Inflation Expected to Slow

The shelter component of the CPI, which includes rent prices and equivalent costs for homeowners, has been one of the primary drivers of elevated overall inflation. Economists are anticipating some moderation there in June.

“We expect shelter inflation to step down from last month’s pace, reflecting declines in rent inflation to 0.36% and owners’ equivalent rent inflation to 0.39%, as the gap between rents for new and existing tenants continues to narrow,” analysts from Goldman Sachs wrote on Monday.

Cooling rent and OER inflation in the coming months “should add to the Fed’s confidence on the inflation outlook,” analysts from Bank of America said.

When Will the Fed Cut Rates?

While Fed officials have acknowledged the recent progress on inflation, they’ve maintained that they are still looking for more improvement before beginning to ease policy.

In prepared testimony before lawmakers on Tuesday, Fed Chair Jerome Powell acknowledged the “modest further progress” seen in recent data, but he suggested more progress would be necessary. “More good data would strengthen our confidence that inflation is moving sustainably toward 2%,” he said, adding that the Federal Reserve Open Market Committee continues “to make decisions meeting by meeting.”

Bond futures markets see a 68% chance that the central bank will cut rates by 0.25% in September, according to the CME FedWatch tool, along with a roughly 23% chance that the first cut will come in August. They almost universally expect the Fed to hold rates steady at its meeting later this month.