US Inflation Got Another Chop

What's going on here?

Data out on Wednesday showed that US inflation hit a two-year low.
US inflation came in under expectations - fueling hopes that interest rates might be nearing the end of their climb.

What does this mean?

Last week's jobs data hinted that the savvy maneuverings of the Federal Reserve (FED) were starting to bear fruit, and the latest inflation data has gone and confirmed it. See, US consumer price growth fell to 3% in June, marking the slowest rate of inflation in over two years. And sure, that slowdown was partly down to the fact we're comparing prices to June 2022, when the war in Ukraine led to some eye-watering energy prices. But let's not downplay this: after all, inflation's edging toward the Fed's 2% target, a goal that seemed like a fairy tale when inflation was peaking at over 9% last year.

Why should I care?

For markets: The core of the issue.

There was one little caveat to this good news: core inflation. The metric, which strips out volatile food and energy prices, is proving a little sticky - coming in below expectations, granted, but posting a 4.8% yearly rise. And investors will be praying especially hard for that figure to keep dipping. See, while the Fed is still likely to hike interest rates later this month, the latest data's spurring hopes that the aggressive hiking cycle is nearing its end.

And US markets are already rallying on the strength of that prospect - so let's just hope core inflation plays ball.

The bigger picture: Getting schooled....

This inflation news might trigger a sigh of relief, but consumers should brace themselves for a blow from a different quarter: the government's set to hit the play button on the federal student loan payments it paused back when Covid struck. And that's no small potatoes: the resumption of payments on a hefty chunk of the $1.6 trillion in student debt could whip up a serious economic storm later this year. 

Jeff Brown, PhD. 
Founder & Chief Investment Analyst.