INFLATION WATCH - it'll be down for June, but likely not for July

Tomorrow, we are likely to find out that not only did we not have inflation for June, but we may well have had deflation!

The cost of living is all but certain to decline in June for the first time since the pandemic six years ago — entirely due to a sharp drop in gasoline prices. The cost of a regular gallon of gas tumbled 15% from mid-May to the end of June.

Economists predict the U.S. consumer-price index fell by 0.2% in June. The critical report for Wall Street will be released Tuesday morning.

The yearly rate of inflation should follow suit, slowing to 3.8%, from 4.2% in May. The May rate was the highest since April 2023.

So nothing but smooth sailing from here in! Prices should fall back, with no need to raise interest rates, because the war in Iran is done, and it only cost us 4 months of higher gas prices and...

Wait, what's that you're telling me?

The U.S. military said it carried out more strikes on Iran on Monday, hours after President Trump announced he would reimpose a blockade against the country and start charging tolls for other countries' ships to pass the Strait of Hormuz....

Earlier, Trump said the United States would not allow Iranian ships to move through the Strait of Hormuz. "We are reinstating THE IRANIAN BLOCKADE, so named because it is only stopping Iran's ships or customers from entering or leaving," he said in a post online.

CENTCOM said the blockade would begin on Tuesday at 4 p.m. ET. The U.S. military last worked to block maritime traffic to and from Iranian ports from April 13 to June 18.

OH COME ON! This is also why I filled up the car today.

As oil was spiking by more than $5 a barrel today, Federal Reserve Governor Christopher Waller was telling New York business leaders that inflation is definitely back in 2026

"We're building off of basically almost, you know, five to six months of 'higher, higher, higher, higher,' on inflation readings," Waller said. "If I get another higher one, I'm going to treat that as signal, not noise.".

Waller went on to say that inflation was widespread in several areas of the economy, beyond the gas price increases in the first half of this year.

In particular, he said he is worried that recent inflation reports have shown price pressures seeming to broaden throughout the economy, beyond the influence of ‌last year's import tariff increases or the recent jump in energy costs ⁠and potentially reflecting more systemic inflation that would require tighter monetary policy. Of the categories in core services, which account for 75% of core prices, nearly 70% have 3-month and 12-month inflation over 3%, he said.

While the situation is not comparable to the breakout of price increases that followed the COVID-19 pandemic, with the labor market not as tight, ⁠for example, Waller said the Fed has the benefit of anchored inflation expectations — an advantage the policy-setting Federal Open Market Committee should not squander by waiting too long to raise rates if inflation persists.

"I don't take the inflationary signals I have discussed today lightly. If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term," Waller said. He added that it would take "several months of lower readings to feel that inflation is finally moving in the right direction."

And that's why you should ignore what is likely to be an overall drop in inflation that's likely to be reported tomorrow morning. Because it'll be because of a one-month drop for gas prices that are likely to bounce back up in July and August. Look to the core rate beyond food and energy to see if that stays in the +0.2% to +0.4% it was in for the first 5 months of this year. Christopher Waller and the rest of the Fed certainly will.

And then watch out for the Producer Price Index report which will drop on Wednesday. Those prices paid by businesses went up by 1.1% in both April and May, and were up 3.5% in the step before final production, indicating that the increase may be even higher for June. If that comes in hot, we are likely heading toward a rate hike some time in the next 2 months, and boy will the Trump/GOPs, coked-up hedge bros and debt-needy AI types hate that!