In June 2025, the US Consumer Price Index (CPI) increased by 0.3% from the previous month, meeting expectations. The Core CPI rose by 0.2%, which was lower than the predicted 0.3%. Year-over-year, the headline CPI reached 2.7%, up from 2.4% in May. The Core CPI also rose to 2.9%, compared to 2.8% the month before. The rise in the headline CPI was mostly due to shelter costs, which went up by 0.2%. Energy prices increased by 0.9%, with gasoline rising by 1.0%. Food prices went up by 0.3%, affecting both grocery and restaurant costs. The Core CPI experienced increases in areas like household furnishings, medical care, and personal care, while seeing declines in used cars, new vehicles, and airline fares.

Yearly Basis And Market Movements

On a yearly basis, energy prices dropped by 0.8%, but food prices climbed by 3.0%. In the markets, the NASDAQ index gained 143 points, and the S&P index increased by 26.44 points. US Treasury yields stayed mostly steady, with small changes in the 2-year and 5-year yields. This report suggests that the initial stock market rally might be misleading. It is not a clear signal to buy, but rather a warning sign. The lower month-over-month Core CPI figure set off trading algorithms, but the underlying data presents challenges for Powell and the Fed. Year-over-year inflation rates for both headline and core measures have increased, indicating ongoing difficulties. This situation mirrors the tough times from 2023 and 2024 when reducing inflation from 3% to 2% felt impossible. For those trading derivatives, the sensible approach is to take advantage of this quick surge and sell when the prices are high. The VIX, which has remained low for a long time, likely decreased due to this news. This situation presents a good chance to buy volatility at a lower price or create trades that could benefit from a market reversal. Think about call credit spreads on the Nasdaq 100 (NDX) and S&P 500 (SPX) situated just above the new highs after this data release. For more than a year, buying the dips has been successful, but the recent rise in headline CPI from inelastic categories like food and energy could change that trend.

Bond Market Reaction And Currency Implications

The bond market’s lack of response is significant. The 10-year yield remains nearly the same. This indicates the bond market is not excited about a dovish report; instead, it sees persistent shelter costs and rising energy prices, concluding the Fed still has work to do. Any hopes for a quick rate cut have receded. In the Fed funds futures market, chances for a rate cut in the next two meetings will likely drop. This strengthens the case for a stronger dollar. The initial drop in the dollar was a misunderstanding; its recovery reflects the true situation. With US inflation still high and the global growth outlook fragile, the dollar benefits from its yield advantage. This data complicates the situation, especially with tariff issues raised by Michalowski’s team. The impact of tariffs has not yet been fully felt in the supply chain. Historically, as seen during the 2018-2019 trade conflicts, tariffs can create baseline costs that build slowly and are hard to reverse. We are increasing positions that will benefit from a stronger dollar and see the equity rally as an opportunity to build short exposure rather than chase after rising prices. The critical issue is not the 0.2% core monthly figure but the annual 2.9% figure, which keeps the Federal Reserve cautious and limits the potential gains for risk assets. Create your live VT Markets account and start trading now.

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