A huge jump in the prices for used cars and trucks has driven US inflation higher by a forecast busting +0.9% in the month of June for both core and headline CPI.
Consensus forecasts for core CPI had been looking for +0.4% with headline CPI expected to be +0.5% higher on the month.
The bulk of this huge upside surprise has come through the Used cars and trucks component which jumped by +10.5% month on month. This is the third month in a row where this component has had such a huge impact. There is certainly an argument to say that these huge leaps in used autos prices will not last. According to the Bureau of Labor Statistics, this component accounted for a third of the increase in June inflation.
Despite this though, in the year on year numbers, headline inflation is now 5.4% higher than a year ago in June 2020 (+4.9% expected). This is the largest 12-month increase since August 2008. Core CPI is up to 4.5% (+4.0% expected).
Whilst these monthly increases are not expected to continue and inflation is expected to peak, the question remains, how much moderation will occur.
Market reaction:
- There has been a +4bps jump on 10 year US Treasury yields.
- In the 30 minutes since the release, EUR/USD has dropped by -50 pips.
- Reaction on Gold has been interesting. USD strengthening whilst inflation spiking has left a choppy reaction. Currently around -$13 from pre-announcement levels.
