

U.S. consumer inflation slowed more than expected in June as energy prices retreated, but the moderation was insufficient to convince financial markets to take an interest rate increase from the Federal Reserve this year off the table against the backdrop of renewed conflict in the Middle East. The report from the Labor Department on Tuesday, which also showed underlying inflation subsiding last month, gave officials at the U.S. central bank some breathing room when they meet later this month, economists said. They, however, cautioned that June's Consumer Price Index data had been overtaken by the recent escalation in hostilities between the U.S. and Iran.
Fed Chair Kevin Warsh told lawmakers on Tuesday the central bank had "no tolerance for persistently elevated inflation," and he did not think that everything was swell after the CPI report. "Energy prices plunged on the Iran cease-fire and memorandum of understanding," said Scott Anderson, chief U.S. economist at BMO Capital Markets. "But with fighting back on in the Gulf, the MOU in tatters, and energy prices heading higher again in July, the balance of risks remains more heavily weighted toward a rate hike at some point this year." The CPI increased by a still-high 3.5% in the 12 months through June after surging 4.2% in May, which was the largest year-on-year rise since April 2023, data from the Labor Department's Bureau of Labor Statistics showed.
Source: Reuters
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