Inflation will likely remain a headache even if the pace of price increases slows in June.
The Bureau of Labor Statistics is scheduled to release last month’s Consumer Price Index on Tuesday at 8:30 a.m. ET.
Many economists expect the overall figure to fall thanks to falling energy prices. But some warn that the problem is far from resolved and that lowering prices could take longer than consumers would like – especially if energy prices rise again.
After the United States and Iran signed a memorandum of understanding in mid-June, oil prices fell from the mid-90s to around $70 per barrel. However, this decline has begun to ease, at least partially. Benchmarks U.S. crude oil and Brent are trading much higher than their recent lows, with Brent hitting $80 a barrel on Monday.
“With the memorandum of understanding on life support and escalating tensions in the Middle East,” inflation expectations are facing “renewed pressure,” Societe Generale strategists said in a note.
To compound the problem, critical oil storage centers were closed in an attempt to contain prices, but these storage facilities were reduced to nothing. reached decades-long lows. They will have to be filled with hundreds of millions of barrels of oil, which could cause prices to rise again.
Gas prices, the most visible sign of inflation for consumers, are following a similar trajectory. In recent weeks, prices have fallen sharply from the highest level of the year. However, last week that decline stopped at $3.79 per gallon, and prices have increased 8 cents since Monday.
This rise in gas prices coincides with a slowdown in wage growth. In June, the average hourly wage increased by 3.5%well below the 4.2% inflation rate recorded in May.
Economists expect the inflation rate to fall 0.2% month over month, or 3.8% from a year ago, according to a survey by Dow Jones. This decline is expected to be mainly due to lower energy prices.
In May, overall inflation has increased to its highest level since early 2023, after the war with Iran triggered a global energy shock, pushing up oil and gas prices as well as bond yields, which influence consumer borrowing rates. As a result, plane tickets and transportation costs have also increased.
In recent weeks, President Donald Trump has complained that the decline in gas prices is slowing, but experts say stubborn inflation is not limited to energy.
Warning of “declining price rigidity,” Deutsche Bank economists said they expected “relatively moderate declines in both airfares and delivery services” in Tuesday’s report.
Bond yields are also rising alongside oil as inflation expectations rise. The yield on 10-year U.S. government bonds, which plays the most important role in guiding consumer interest rates, hovered around 4.57% on Monday after falling to 3.37% immediately after the signing of the memorandum of understanding. It also returned to almost its highest level of the year.
The explosive development of artificial intelligence systems and data centers around the world is also driving up prices.
As tech giants like Microsoft, Amazon, Google, Meta and others rush to buy as much memory as possible, prices for key components are skyrocketing. There are also only a handful of global companies that make memory for iPhones, computers and data centers.
As a result, Apple increased the price of several of its flagship products last month.
“The rapid expansion of AI data centers has created an extraordinary increase in demand for memory and storage. » the company said in a statement at the time. “We have never seen the price of a component increase so much and so quickly. »
“It’s a storm that only happens once every 100 years” Technology analyst Dan Ives told NBC News last month. “It’s expensive and getting more expensive, and AI development needs memory, which is a good thing for memory chip players. It’s a bad thing for everyone.”
Other consumer technology companies, including video game console makers Xbox and PlayStation, also increased prices.
Excluding energy and food costs, core inflation – which excludes the volatile food and energy categories – is expected to fall only slightly to 2.8% from 2.9% in May, a sign of this stickiness.
This also worries economists and policymakers at the Fed. On Monday, Federal Reserve Governor Christopher Waller said, “We are past the point where we can attribute large price increases to past tariff hikes. »
Waller said that if underlying inflation is “hot” again this week, the Fed will have to consider raising rates “soon.”
Speaker Kevin Warsh is expected to testify before lawmakers Tuesday and Wednesday. The Fed’s next interest rate decision is scheduled for July 29.
