US inflation is expected to reach its lowest level in more than two years in June

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US inflation is expected to have fallen to its lowest level in more than two years in June, but stubbornly high price gains for “essential” products and services mean that a slowdown is unlikely to dampen expectations that the Federal Reserve will resume rate hikes in time. Subsequent. Month.

The annual increase in the consumer price index is expected to decline to 3.1 percent from 4 percent in May, according to economists polled by Refinitiv. That would represent the slowest inflation rate since March 2021.

Prices are expected to rise 0.3 percent month-on-month in June, up from 0.1 percent in the previous month, but the year-over-year figure will be helped by so-called fundamental effects, with very large hikes from June 2022 leaking out of the calculations. . Official numbers will be released at 8:30 ET on Wednesday.

Economists expect a more moderate decline in the “core” consumer price index, which is expected to slow to an annualized rate of 5 percent in June from 5.3 percent. Core prices, which exclude volatile food and energy costs, are expected to rise 0.3 percent on a monthly basis, compared to 0.1 percent in May.

The headline inflation rate has been steadily approaching the Fed’s 2 per cent target after peaking at more than 9 per cent last June. However, core inflation has proven to be more stable, raising expectations that the US central bank will need to raise interest rates further.

The Fed raised the benchmark interest rate to a range of 5 to 25.25 percent from nearly zero at the start of 2022. Officials held rates steady at their last policy meeting in June, to assess the impact of previous hikes, but made clear they expected further increases before year end.

Last week’s labor market data also highlighted persistent inflationary pressures, with unemployment still near multi-decade lows and wages growing above levels considered consistent with the Fed’s inflation target.

Futures markets on Wednesday were pricing in a more than 90 percent chance that prices will rise another 0.25 percentage point at the next Federal Reserve meeting at the end of July.

Expectations of a rate hike pushed the policy-sensitive two-year Treasury yield to a 16-year high last week. Yields have eased slightly since then, but analysts at BlackRock predicted that “continued evidence of stubbornly high inflation could add momentum to the recent rally.”