WEEKLY E-MAIL

24 Jul 2023

US: JUNE INFLATION READINGS & S&P 500 AT 14-MONTH HIGH

By Patrick Malcolm

Very positive US inflation readings for June saw equity and bond prices surge, with the S&P 500 reaching a 14-month high:

In detail, the June headline CPI rose 0.2% versus the consensus of 0.3% after increasing by 0.1% in May. The annual rate fell to 3% from 4% in May and consensus of 3.1%, dragged lower by declines in energy commodities (-16.7%) and used cars and trucks (-5.2%) with offsets in shelter (+7.8%), transportation services (+8.2%), and food (+5.7%). Shelter accounted for over 70% of the monthly all-items increase.

The core reading, excluding food and energy, also increased by 0.2% against the consensus of 0.3%, with the annual rate falling from 5.3% in May to 4.8% and a consensus of 5.0%. It was the lowest read since October 2021 (Exhibit 1). There are several other core alternatives, and all are headed lower and encouragingly better than expected. There is a limit to how far used car and truck prices can fall after declining in five of the past seven months.

Source: Morningstar

The core CPI (4.8%) and core Personal Consumption Expenditure Price Index (4.6%) are still more than double the Fed’s longer-term target of 2%. While the recent incoming data is encouraging, the job must be finished. It does not seem like the inflation genie is back in the bottle yet.

Despite the better-than-expected numbers, the market pricing for a rate hike on 26 July was unchanged at 89%. The Wall Street Journal’s Fed whisperer suggests the good numbers will not prevent a lift in rates later in the month and only a maybe in September.

Patrick Malcolm

Senior Partner
Certified Financial Planner®
SMSF Specialist Advisor™
Barron’s Top Financial Adviser 2020
Authorised Representative No. 278061

If you have any questions or comments, please email me at patrick@gfmwealth.com.au

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