Sticky Core CPI at 2.9% Pressures Fed as Shelter, Energy Costs Climb

Inflation Inches Higher: What’s Driving the Uptick?

The U.S. Consumer Price Index (CPI) rose 0.3% in June on a seasonally adjusted basis, up from 0.1% in May, according to the latest data from the Bureau of Labor Statistics. Annual inflation climbed to 2.7%, compared to 2.4% in the previous month—an increase closely watched by traders looking for clues about the Federal Reserve’s next move.

Shelter, Energy, and Food Propel CPI Gains

Shelter remained the key driver of inflation, advancing 0.2% month-over-month and up 3.8% year-over-year. Within that, owners’ equivalent rent posted a 0.3% monthly increase. Meanwhile, energy prices reversed May’s decline, rising 0.9% in June. Gasoline rose 1.0%, while electricity prices surged 1.0% month-over-month and 5.8% annually. Natural gas was also higher, up 0.5% on the month and 14.2% year-over-year.

Food prices posted a 0.3% increase, driven by higher costs for beverages (+1.4%) and fruits and vegetables (+0.9%). Egg prices dropped sharply by 7.4%, though beef saw a 2.0% gain. The food index overall rose 3.0% year-over-year, with food away from home up 3.8%, highlighting persistent service inflation.

Core Inflation Remains Sticky, Pressuring Fed Outlook

Excluding food and energy, core CPI rose 0.2% in June, matching the previous month’s increase. On an annual basis, core inflation held steady at 2.9%, indicating persistent price pressure in services and select consumer goods. Notable increases came from medical care services (+0.5%), household furnishings (+1.0%), and apparel (+0.4%). However, used vehicle prices continued to slide, down 0.7%, while new vehicle prices fell 0.3%.

Airline fares declined again (-0.1%), helping offset service inflation elsewhere. Traders should note that transportation services dipped 0.1% month-over-month, potentially easing broader inflationary concerns in this category.

Will the Federal Reserve React?

The uptick in headline inflation and steady core pressure may complicate the Federal Reserve’s policy outlook. While year-over-year inflation remains below the Fed’s 2% target, the persistent core readings and strength in shelter and service components suggest inflation is not yet fully under control. Market participants should monitor upcoming labor data and the July CPI for additional policy cues.

Market Forecast: Neutral to Slightly Bearish

Short-term market sentiment leans neutral to slightly bearish for equities and bonds. Persistent core inflation, led by services and shelter, could keep the Fed cautious about rate cuts. Treasury yields may remain elevated in the near term, and rate-sensitive sectors—especially tech and real estate—may see added pressure unless incoming data show a convincing softening in inflation.