Introduction

The June Consumer Price Index (CPI) report for the United States is due soon, an event keenly awaited by investors and economists alike. This report will provide vital data on inflation, helping to determine whether the trade war initiated by former President Trump has significantly impacted prices.

Analyst Expectations

Wall Street anticipates that the impact will be evident in the core CPI, which excludes volatile food and energy prices. Strategists at TD Securities and economists at BofA Securities are projecting a 0.3% month-over-month increase, up from 0.1% in May. If realized, this would be the highest level since January.

TD Securities Analysis

TD Securities expects an acceleration in goods prices in June, reflecting the pass-through of some tariff costs. However, unlike in May, they do not believe that the service sector will offset this increase.

Bank of America Analysis

Bank of America analyzes that core goods prices will be the main driver of accelerating inflation, projecting a 0.2% monthly increase, mainly due to higher used car prices. They also believe that the range of price increases will be broad-based, partly attributable to tariffs.

Importance of Core CPI

The core CPI is important because it helps investors, businesses, and policymakers better understand underlying inflation trends by excluding the most volatile components. It also provides guidance for interest rate decisions by central bank officials and can influence exchange rates and bond markets.

Potential Market Reaction

It will be crucial to see whether market participants view a June core CPI increase as a one-off event or as a precursor to further inflationary pressures.

Optimistic Views

Several analysts are expressing optimism. Lawrence Gillum, chief fixed income strategist at LPL Financial, stated that the bond market does not truly anticipate inflation reaccelerating, based on the movements of inflation swaps and breakeven rates.

Potential Risks

Gillum warns that there are risks in the bond market. If we do see inflation reaccelerating, we could see higher yields for the wrong reasons. If US Treasury yields rise in the context of reaccelerating inflationary pressures, the scope of priced-in rate cuts could be reduced, and this could also bleed into the stock market.

Conclusion

The June CPI report will provide vital insights into inflation and price trends. While analysts anticipate a slight increase, the market's reaction will depend on their perceptions of the sustainability of these increases. Investors should monitor the data closely to assess its potential impact on financial markets and their portfolios.