Australian exchange rate investment, bearish on the dollar! U.S. inflation in June was lower than expected, and the end of the most aggressive interest rate hike cycle is in sight

U.S. inflation fell to its lowest annual rate in more than two years in JuneThis is both the result of a slowdown in costs and the ease of comparison with the period of the highest price increases in more than 40 years.

Measuring inflationCPI rose 3% year-on-yearThis is the lowest level since March 2021; the index measures the prices of goods and servicesUp 0.2% month-on-monthAnd Dow Jones expects growth of 3.1% and 0.3%, respectively

Chart: US CPI (year-over-year percentage change through June this year, dark blue includes all items, dotted light blue excludes food and energy, shaded areas indicate recessions)

After adjusting for volatile food and energy prices,Core CPI rose 4.8% year-on-year and 0.2% month-on-month.The consensus forecast is for growth of 5% and 0.3% respectively. The annual rate is the lowest since October 2021

Taken together, the numbers could give the Fed some breathing room as it looks to bring down inflation, which at this point in 2022 is running at about 9 percent annually, its highest level since November 1981.

George Mateyo, chief investment officer at Key Private Bank, said: "Significant progress has been made on the inflation front, with the June inflation report confirming that inflation is finally starting to cool even as much of the US is coping with warmer external temperatures. The Fed will accept the report as confirmation that their policies are having the desired effect - that inflation has come down and growth has not stalled."

However, Federal Reserve policymakersPrefer to focus on core inflation, which remains well above the Fed's 2% annual target. Mateyo said the report was unlikely to prevent the Fed from raising interest rates again later this month。

Fed officials expect inflation to continue to fall, especially as housing costs, which account for about a third of the CPI weighting, fall. But the housing index rose 0.4 per cent last month, up 7.8 per cent from a year earlier. The Bureau of Labor Statistics said the monthly increase accounted for about 70 per cent of the overall CPI increase.

Lisa Sturtevant, chief economist at Bright MLS, said: "The cost of housing, which accounts for a large share of inflation, has not fallen significantly. Because the Fed pushed rates so low during the pandemic and then rose so quickly, the Fed's rate hikes have not only reduced housing demand (as expected), but also severely constrained supply as homeowners are locked into homes they would otherwise be listing."

Wall Street responded positively to the report, with Dow futures rising nearly 200 points and Treasury yields falling across the board.

Traders stillThe Fed is expected to raise interest rates by 25 basis points at its July 25-26 meetingHowever, market assessments show thatThis will be the last rate hikeAs officials put interest rate hikes on hold, allowing a series of rate hikes to play a role in the economy.

When inflation first began to accelerate in 2021, Federal Reserve officials and most Wall Street economists assumed it would be "temporary" or likely to subside once the pandemic-specific factors, including surging demand for goods rather than services and supply chain clogs that led to shortages of key products like semiconductors, dissipated.

But when inflation was more stubborn than expected, the Federal Reserve began to raise interest rates, eventually increasing them by 5 percentage points through 10 consecutive rate hikes since March 2022.

Although energy prices rose 0.6% in the month, the overall CPI increase was modest. However, the energy index was down 16.7% from a year ago, when gasoline at the pump was around $5 a gallon.

Food prices rose just 0.1% for the month, while used car prices fell 0.5%. Used car prices are the main source of inflation spikes in early 2022. Airfare prices fell 3% for the month and are currently down 8.1% for the year.

The fall in the CPI helped lift workers' wages: real average hourly earnings, adjusted for inflation, rose 0.2 per cent in May-June and 1.2 per cent year-on-year. During the inflation spike that peaked in June last year, wage growth has lagged behind increases in the cost of living.

Dollar index daily chart

At 11:35 on July 13, Beijing time, the US dollar index reported 100.46.