Market Wire - US Inflation Smashes Expectations, Sending Dollar Higher

Headline US consumer prices rose by far more than anticipated in June, sending rates spiralling upward as market participants brace for an aggressive response from the Federal Reserve. According to data released by the Bureau of Labor Statistics this morning, the consumer price index climbed 9.1 percent in June from the same period last year, up a seasonally-adjusted 1.3 percent from May. Economists polled by major data providers expected 8.8 percent and 1.1 percent gains, respectively. 

A 7.5 percent month-over-month surge in energy prices - helped by an 11.2 percent leap in the gasoline sub-index - added to a 1 percent jump in food costs. New vehicle prices ratcheted 0.7 percent higher, and the index for used cars and trucks rose 1.6 percent in June. 

Services inflation continued to rise, with shelter costs up 0.6 percent, transportation gaining 2.1 percent, and medical care 0.7 percent higher. Airline fares dropped -1.8 percent.

With highly-volatile food and energy components excluded, core prices rose 5.9 percent year-over-year, up 0.7 percent over the prior month. This was faster than the 0.5 percent expected in markets. 

Two- and ten-year bond yields ratcheted much higher after the data hit the wires, and the dollar rose. A number of Federal Reserve officials have already telegraphed a 75 basis-point move for July, and post-release implied market pricing suggests odds on a similar-sized move in September have risen sharply. Stocks are dropping, the euro-dollar exchange rate appears on the verge of breaking through parity.