Highlights
In June, consumer price inflation jumped and on higher gasoline price but other components also added to the spike. The headline CPI surged 0.7 percent, following a 0.1 percent uptick in May. The June rate matched the market forecast. In the latest month, energy costs posted a 7.4 percent hike while food price inflation was unchanged. Meanwhile, core CPI inflation firmed to 0.2 percent in June from a 0.1 percent uptick in May. The market expectation was for a 0.1 percent gain for the core.

The 7.4 percent boost in energy costs was due to a 17.3 percent spike in gasoline prices after a 3.1 percent gain in May.. Heating oil rose 2.0 percent while piped gas and electricity declined 1.2 percent.

Within the core, new & used motor vehicles advanced 0.4 percent, apparel jumped 0.7 percent, and recreation gained 0.5 percent (largely on admission fees and for cable and for satellite television and radio). Tobacco and smoking products increased 0.8 percent. On the soft side were rent of primary residence and owners' equivalent rent, both rising 0.1 percent.

On a year-ago basis, headline inflation dropped to down 1.2 percent (seasonally adjusted) in June from down 1.0 percent in May. Meanwhile, the core rate eased to up 1.7 percent from up 1.8 percent in May. On an unadjusted year-ago basis, the headline number was down 1.4 percent in June while the core was up 1.7 percent.

The June CPI report showed temporarily hot headline inflation as the energy component is expected to reverse in July. But some portions of the core were stronger than expected, including apparel and recreation. Also, the CPI for new and used motor vehicles rose significantly.

While most of the headline numbers should be shrugged off, the firming in the core should be a little worrisome and likely will weigh on bond prices. There were enough components showing notable increases to question the view that the recession is keeping inflation down. Also, the Empire State manufacturing index posted a nice increase and that should also help bond yields bump up.

Market Consensus before announcement
The consumer price index edged up 0.1 percent in May after no change the month before. Keeping the headline CPI soft was a 0.2 percent decline in food prices that helped to offset a 0.2 percent gain in energy costs. But looking ahead, a rise in gasoline prices will likely bump up the headline CPI temporarily for June.

2009 Release Schedule

Released On: 1/16 2/20 3/18 4/15 5/15 6/17 7/15 8/14 9/16 10/15 11/18 12/16 Release For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov