U.S. Treasury Bonds Slightly Rise Post Inflation Reports
In a significant development, the June 2022 consumer price inflation report has highlighted persistent inflation pressures, validating concerns that inflation was not yet fully under control. The report, which was included in the Commerce Department's report on personal income and spending, showed the Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index, rising more than expected.
The headline PCE inflation increased 0.3% on a monthly basis and 2.6% annually in June. Similarly, the core PCE inflation (which excludes food and energy) also climbed 0.3% monthly and 2.8% annually. These figures were higher than economists’ forecasts, indicating that inflation pressures were intensifying.
Moreover, the core PCE inflation at a 2.8% annual rate remained above the Fed’s target of 2%, suggesting that the central bank's efforts to curb inflation may need to continue. The report also suggested that tariff-related inflation was beginning to impact consumer prices, contributing to the upward price pressures the Fed monitors closely.
Despite these inflationary pressures, consumer spending also edged higher, indicating that inflation was not yet dampening demand significantly.
The June report, therefore, served as a notable data point framing the Fed’s monetary policy decisions at that time.
In the bond market, treasuries moved higher during trading on Thursday. Bond prices climbed early in the session and remained positive throughout the day. The yield on the benchmark ten-year note dipped 1.6 basis points to 4.360 percent.
Looking ahead, traders are likely to keep an eye on a report on manufacturing activity. On Friday, the Labor Department's monthly jobs report is expected to be in focus.
[1] The PCE price index rose by an upwardly revised 0.2 percent in May. [2] The Commerce Department reported that consumer prices in the U.S. increased by 0.3 percent in June. [3] The annual rate of growth by the PCE price index for June accelerated to 2.6 percent from an upwardly revised 2.4 percent in May. [4] Economists had expected the annual rate of growth by the core PCE price index to remain unchanged compared to the 2.7 percent originally reported for the previous month. [5] The increase in the core PCE price index matched economist estimates. [6] Economists had expected the index to climb by 0.3 percent compared to the 0.1 percent uptick originally reported for the previous month.
- In response to the rising consumer prices, investors might adjust their financial strategies to account for the intensifying inflation pressures, focusing more on securities less sensitive to inflation such as Treasury Inflation-Protected Securities (TIPS).
- The persistent inflation scenario could potentially affect long-term investment plans, as the overall purchasing power of money decreases, necessitating increased capital to maintain the same standard of living.
