In June, headline CPI growth in the U.S. edged down to 3% from 3.3% in May. That’s below consensus expectations and marked another downside surprise after May, Rabobank macro strategists note.

The odds are tilting towards a September Fed rate cut

“That closely watched supercore measure posted a second consecutive outright decline (-0.04% in May and -0.05% in June) to leave the three-month annualized basis down to 1.3% in June. That's the slowest reading since October 2021 and just half of the pre-pandemic run rate of 2.6%. The easing among core services components was also widespread, with transport and education services seeing monthly declines from May.”

“Energy CPI dropped lower to 1% in June upon a second monthly decline in gasoline prices. Food CPI was little changed at 2.2%, as slower reading for grocery CPI (1.1%) continued to balance off still elevated inflation for dining out (4.1%). The broader ‘core’ CPI excluding food and energy also dropped to 3.3% above last year after a smaller 0.1% monthly increase from May.”

“A second U.S. CPI downside in a row in June has added to market odds for a first rate cut from the Federal Reserve (Fed) this September. After today's CPI report, we think an interest rate cut at the Fed’s next meeting in July is still unlikely but the odds are tilting towards a September cut.”