'Ice cold' June CPI data comes in below expectations. This is what it means for advisors

June’s Consumer Price Index data, released early Tuesday, came in below Wall Street’s expectations and “pours cold water” on the possibility of near-term rate hikes, according to Josh Jamner, Senior Investment Strategy Analyst.

Data from the U.S. Bureau of Labor Statistics released early Tuesday show that June’s CPI, an important measure for inflation, increased 3.5% over the last 12 months, down from 4.2% in May, which saw CPI hit its highest level in three years. Economists surveyed by Dow Jones Newswires and The Wall Street Journal were looking for CPI to increase 3.8% year over year.

“CPI came in ice cold and well below expectations,” said Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments, in a statement. “This print pours cold water on the case for rate hikes in the near-term and should lift risk assets including US equities as rate hikes get priced out of the market and yields across the curve fall.”

“Underneath the hood, inflation was fairly muted with lower energy costs, softer shelter inflation, modest goods deflation, and tame services inflation,” he added.

On a seasonally adjusted basis, CPI decreased 0.4% in June, compared with expectations of a 0.2% decrease, and after rising 0.5% in May. This marked the largest 1-month decrease since April 2020 when it fell 0.8%, according to the Bureau of Labor Statistics.

Core CPI, or the index for all items less food and energy, was unchanged in June at 0.0%, compared with economists’ expectations for a 0.2% increase. On a year-over-year basis, Core CPI rose 2.6%, just below expectations for a 2.9% increase.

Stephen Coltman, head of macro at 21shares, said that the PCI data is particularly notable given Federal Reserve Governor Christopher Waller’s comments Monday that if there was another “hot reading” on core inflation this week, then the Fed will need to consider tightening monetary policy in the near term.

“Markets were nervous in the wake of Waller’s comments yesterday explicitly citing today’s CPI print as an important data point for a finely balanced Fed rate decision later this month, and markets will be hugely relieved to see both headline and core come in well below expectations,” Coltman said, in a note. “The hawks can stand down for now.”

Advisors and investors have been closely watching new Fed Chair Kevin Warsh for any clues as to the central bank’s interest rate policy. Last month the Fed kept to its path of keeping its policy rate steady at 3.5% to 3.75% in its first meeting with Warsh in the hotseat. The Fed made its last rate cut in December and Warsh’s predecessor Jerome Powell resisted pressure from President Donald Trump to cut rates.

However, the resumption of the conflict between the U.S. and Iran could have a big impact on the interest-rate environment.

“While the June CPI is good news on the surface, with inflation marking the first monthly drop in two years, it's like looking in the rearview mirror and trying to figure out where your next exit is,” said Nic Puckrin, founder of The Coin Bureau, and a former Goldman Sachs analyst, in a statement Monday. “Oil and gasoline prices – the main reason inflation eased in June – have started to edge back up on renewed US-Iran tensions, but the CPI won't reflect this for another month.”

“The market will likely interpret this as a huge relief,” he added. “But, given the rapidly changing economic environment, today's numbers are unlikely to sway the Fed in either direction.”

After the latest CPI data, the spotlight will shift back to Warsh over the coming days. Warsh is scheduled to appear before the House Financial Services Committee Tuesday, and before the Senate Banking Committee Wednesday morning.