Here Come The China Tariffs: Core Inflation Hotter Than Expected, Pain For Powell

Having slowed and disappointed for the last two months, all eyes are on US consumer price index growth (which was expected to slow once again in June) this morning as the next Fed rate-cut narrative confirmation.

The problem for rate-cut-hopers is that the picture is mixed at best. Headline CPI slowed to +1.6% YoY (exactly as expected) - below The Fed's mandated 2.0% 'stability' level; but the more important core CPI rose 0.3% from the prior month, the most since January 2018, and 2.1% 2.1% YoY (hotter than the expected 2.0%) and above the Fed's 2 target:

The 12-month change for Core CPI has been in the range of 2.0 to 2.2% for 11 months in a row. Transitory?

Under the hood, weakness in energy prices dominated the downside while used car prices rose more than expected

The tariff effect is beginning to hit perhaps - The index for household furnishings and operations rose 0.8 percent in June, its largest increase since February 1991, as the index for gardening and lawncare services rose 6.1 percent.

Rent and shelter costs are re-accelerating - rent inflation highest since August 2017, shelter inflation highest since July 2018...

Both Goods and Services prices picked up in June (with Goods back into positive territory YoY) and Services rise 2.8% YoY...

The firmer inflation readings follow Fed Chairman Jerome Powell's testimony to lawmakers Wednesday that there’s “a risk that weak inflation will be even more persistent than we currently anticipate.’’