Consumer prices expected to have cooled further in June, bolstering hopes for Fed rate cuts

On Thursday, investors will digest one of the most important data points that will shape future Federal Reserve interest rate policy: June's Consumer Price Index (CPI).

The inflation report, set for release at 8:30 a.m. ET, is expected to show headline inflation of 3.1%, a deceleration from the 3.3% rise seen in May. This would be the smallest annual rise since January as another drop in energy prices likely will have contributed to further downward pressure on headline CPI.

Over the prior month, consumer prices are expected to have risen 0.1%, a slight uptick from May's flat monthly reading.

Meanwhile, on a "core" basis, which strips out the more volatile costs of food and gas, prices in June are expected to have risen 3.4% over last year and 0.2% over the prior month, unchanged from May, according to Bloomberg data.

"We expect the June CPI report to be another confidence builder following the undeniably good May report," Bank of America economists Stephen Juneau and and Michael Gapen wrote in a note last week.