- The consumer price index rose 0.2% in June and was up 3% from a year ago, the lowest level since March 2021.
- Excluding food and energy, core CPI increased 0.2% and 4.8%, respectively.
- Soft gains in food prices and declines in used vehicle and airline prices helped keep inflation down, while shelter prices continued to rise.
- Worker wages adjusted for inflation increased 1.2% from a year ago.
As a result of some cost slowdown and straightforward comparisons to a period when price increases were running at a more than 40-year high, inflation decreased to its lowest annual rate in more than two years during June.
The consumer price index, a gauge of inflation, rose by 3% from a year earlier, the smallest increase since March 2021. The index, which tracks a wide range of prices for both products and services, increased by 0.2% on a monthly basis.
That compared with Dow Jones estimates for respective increases of 3.1% and 0.3%.
The core CPI increased 4.8% from a year ago and 0.2% on a monthly basis after excluding volatile food and energy prices. Estimates of the predicted gains by consensus were 5% and 0.3%, respectively. It was the lowest yearly rate since October 2021.
In conclusion, the figures may provide the Federal Reserve with some breathing room as it works to reduce inflation, which was running at a rate of almost 9% annually at this point in 2022, the highest since November 1981.
Despite the fact that much of the country is experiencing hotter weather outdoors, there has been tremendous success achieved in the fight against inflation, according to today’s report, according to George Mateyo, chief investment officer at Key Private Bank. The Fed will welcome this news as proof that its policies are working as intended—inflation has dropped, but growth hasn’t yet stagnated.
However, core inflation, which is still running well above the Fed’s 2% annual objective, receives more attention from central bank policymakers. The central bank is likely to raise rates again later this month, according to Mateyo.
Fed officials anticipate a continued decline in inflation, especially as housing expenses decline, which account for about one-third of the CPI’s weighting. On the other hand, the shelter index increased 0.4% last month and was up 7.8% annually. According to the Bureau of Labour Statistics, such monthly gain was responsible for around 70% of the increase in the headline CPI.
According to Lisa Sturtevant, chief economist at Bright MLS, “housing costs, which account for a large share of the inflation picture, are not coming down meaningfully.” “Because the Federal Reserve pushed rates so low during the pandemic and then quickly increased them, their rate increases not only reduced housing demand, as they were intended to, but also severely constrained supply by preventing homeowners from listing their homes for sale.”
The announcement was well received on Wall Street, as futures for the Dow Jones Industrial Average rose by over 200 points. Across the board, Treasury yields decreased.
Traders continue to factor in a high likelihood that the Fed will raise interest rates by a quarter of a percentage point during its meeting on 25–26 July. Market pricing, however, indicates that this will be the final raise, as policymakers take a break to let the economy adjust to the succession of increases.
Most Wall Street analysts and Fed officials predicted that the acceleration in inflation in 2021 would be “transitory,” or that it would likely subside as the effects of the Covid epidemic faded off. They included an increase in the demand for things over services and supply-chain bottlenecks that led to a shortage of essential products like semiconductors.
However, when inflation proved to be more persistent than expected, the Fed started raising rates. Through a sequence of 10 rises since March 2022, benchmark rates have ultimately gone up by 5 percentage points.
Despite a 0.6% month-over-month increase in energy prices, the headline CPI only saw a modest uptick. But compared to a year earlier, when petrol prices at the pump were hovering around $5 per gallon, the energy index fell by 16.7%.
Food costs increased by just 0.1% on a monthly basis while used car prices, which were a major driver of the inflation spike in the first half of 2022, decreased by 0.5%.
Flight prices decreased 8.1% in a single month and are now 18.9% lower annually.
Real average hourly earnings gained 0.2% from May to June and increased 1.2% on an annual basis due to inflation, which was moderated by the CPI. Employee pay had persistently lagged behind cost-of-living increases during the inflationary rise that peaked in June of last year.
Correction: Monthly airline fare declines totaled 8.1%, and annual declines total 18.9%. The percentages in an earlier version were incorrect.