The United States saw a significant decline in inflation in June, with the Consumer Price Index (CPI) falling 0.1% from May, bringing the annual inflation rate down to 3%. This is the lowest level obtained in over three years and marks the first monthly decrease since May 2020, according to the latest report from the Bureau of Labor Statistics.
The core CPI, which excludes volatile food and energy prices, increased by 0.1% monthly and 3.3% annually, lower than economists’ forecasts. This slower pace of price increases strengthens the case for the Federal Reserve to consider lowering interest rates later this year.
A major factor contributing to the decline was a 3.8% drop in gasoline prices, which offset modest increases in food and shelter costs. The housing sector, which accounts for about one-third of the CPI weighting, showed signs of cooling with only a 0.2% increase – the smallest rise in three years.
The report had an immediate impact on financial markets, with stock futures rising and Treasury yields falling. Many analysts now believe the Fed is moving closer to implementing rate cuts, possibly as early as September.
Chris Larkin, managing director at E-Trade from Morgan Stanley, commented,
“Unless most of the numbers pivot back into ‘hot’ territory, the Fed’s reasoning for not cutting rates may no longer be justified.”
The positive inflation news also translated to gains in real wages, with average hourly earnings increasing 0.4% monthly, although the annual increase remains modest at 0.8%.
While this news is encouraging for consumers who have faced rapidly rising prices for the past three years, economists caution that the cumulative effects of inflation are still being felt. The overall CPI remains about 20% higher than it was in February 2020, which may continue to influence consumer behavior and perceptions of the economy in the coming months.