In June, the monthly inflation rate decreased for the first time in over four years, bolstering the argument for the Federal Reserve to lower interest rates later this year. The consumer price index (CPI), a comprehensive measure of U.S. goods and services costs, dropped 0.1% from May, reducing the 12-month rate to 3%, its lowest level in over three years, according to the Labor Department. The all-items index rate decreased from 3.3% in May, marking the first monthly decline since May 2020.
Excluding volatile food and energy costs, core CPI increased 0.1% monthly and 3.3% annually, slightly below forecasts of 0.2% and 3.4%, respectively. The annual rise in core CPI was the smallest since April 2021.
A 3.8% drop in gasoline prices helped curb inflation, counterbalancing 0.2% increases in food and shelter costs. Housing-related expenses, which constitute about one-third of the CPI weighting, showed signs of easing.
Following the report, stock market futures rose and Treasury yields fell.
Additionally, used vehicle prices fell 1.5% monthly and 10.1% annually, a key factor in the initial inflation surge in 2021.
Real average hourly earnings for workers rose 0.4% monthly, though they were up just 0.8% from a year ago, according to a separate BLS report.
Despite the Fed’s 2% annual inflation target, the June CPI report indicates that price trends are moving in the right direction. CPI peaked above 9% in June 2022, leading to a series of interest rate hikes that ended in July 2023. Since then, the Fed has kept its benchmark rate between 5.25%-5.50%.
In other news, weekly jobless claims fell to 222,000, the lowest level since June 1. Continuing claims also slightly decreased to 1.85 million.
Thanks for reading,
Chris
