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Inflation Runs Hot in June as CPI Rises 5.4%, Adding Further Fed Pressure

Faster-than-expected June CPI data will add further pressure to the Federal Reserve's 'transitory' narrative on domestic inflation.

U.S. consumer price inflation accelerated at a faster-than-expected clip last month, data from the Bureau of Labor Statistics indicated Tuesday, adding further pressure to the Federal Reserve's view that pressures will ease into the start of next year.

Headline CPI for the month of May was estimated to have risen 5.4% from last year, the highest since 2008, and 0.9% when compared to the May reading, with both tallies coming in ahead of Wall Street forecasts. 

So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.9% on the month and 4.5% on the year, the report noted, the highest since the early 1990s.

"The index for used cars and trucks continued to rise sharply, increasing 10.5% in June," the BLS said. "This increase accounted for more than one-third of the seasonally adjusted all items increase. The food index increased 0.8% in June, a larger increase than the 0.4-percent increase reported for May. The energy index increased 1.5% in June, with the gasoline index rising 2.5% over the month."

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U.S. stocks were turned lower following the data release, with futures contracts tied to the Dow Jones Industrial Average indicating a 60 point opening bell dip and those linked to the S&P 500 priced for an 7.5 point decline.

Benchmark 10-year notes were around 3 basis points higher at 1.38% following the data release. The bonds were trading at a five-month low of 1.25% last week.

The Federal Reserve's preferred measure of U.S. inflation surged the most in nearly three decades for a second consecutive month in May, as well, as consumer spending found the final tailwind boost from President Joe Biden's $1.9 trillion American Rescue Plan and supply-chain bottlenecks added to price increases.

The core May PCE Price Index rose 3.4% from last year, the highest since 1991, and 0.5% on the month, the Bureau of Economic Analysis reported, just under Wall Street forecasts but still adding to investors concerns about the sticky nature of consumer prices.