Inflation Rate Hits 8.8%, But Fed Pressure to Keep Tightening Monetary Policy Continues

Strategic Insights -

The recent decline in gas prices may be a sign that inflation is finally peaking, but it won't be reflected in tomorrow's June consumer price index data, which is expected to reveal an 8.8% inflation rate. Deutsche Bank economists predict an even higher rate of 9%. This hot inflation data will likely lead the Federal Reserve to continue aggressively tightening monetary policy, placing further pressure on stocks. The Dow Jones industrial average closed lower for a third consecutive session on Tuesday, while the Nasdaq's bid to retake its 50-day moving average appears to have faltered.

Key Takeaways:

  • The June consumer price index data is expected to reveal an 8.8% inflation rate, with Deutsche Bank economists predicting 9%.
  • The core CPI, excluding food and energy prices, is expected to rise 0.5%, with the core inflation rate easing to 5.8% from 6%.
  • Nonenergy services inflation, which affects 57% of consumer budgets, has reached a 30-year high of 5.2% in May.
  • The Federal Reserve is expected to continue aggressively tightening monetary policy, placing pressure on stocks.
  • The Dow Jones industrial average has closed lower for a third consecutive session, with the Nasdaq composite under pressure.
  • The S&P 500 has fallen 20.4% from its peak close, returning to bear market territory.
  • Markets are pricing in a 75-basis-point rate hike on July 27 and another 50-basis-point hike on September 21.

Statistics:

  • 8.8%: expected June consumer price index inflation rate
  • 9%: Deutsche Bank economists' prediction for June consumer price index inflation rate
  • 0.5%: expected monthly rise in core CPI
  • 5.2%: nonenergy services inflation rate in May (30-year high)
  • 57%: proportion of consumer budgets affected by nonenergy services inflation
  • 15.8%: Dow Jones' decline from its all-time closing high on January 4
  • 20.4%: S&P 500's decline from its peak close
  • 29.85%: Nasdaq's decline
  • 75-basis-point: expected rate hike on July 27
  • 50-basis-point: expected rate hike on September 21

Sources:

  • Deutsche Bank (economists' prediction for June consumer price index inflation rate)
  • Federal Reserve (tightening monetary policy)
  • Dow Jones Industrial Average (June 2022 prices)
  • Nasdaq Composite (June 2022 prices)
  • S&P 500 (June 2022 prices)
  • CME Group (markets pricing in rate hikes)