Inflation fell to its lowest level in more than two years in June, a result of a moderation in costs and an easy comparison with a period when price gains were at a more than 40-year high.
The consumer price index rose 3% year over year, the lowest level since March 2021. On a monthly basis, the index, which measures prices for a broad range of goods and services, rose 0.2%.
That compares with Dow Jones forecasts for increases of 3.1% and 0.3%, respectively.
Excluding the volatile food and energy prices, the core CPI rose by 4.8% year-on-year and 0.2% month-on-month. The consensus forecast was for increases of 5% and 0.3%, respectively.
All told, the data may give the Fed some breathing room as it looks to bring down inflation, which is running at about 9% a year by this time in 2022, the highest since November 1981.
“Significant progress has been made on inflation, and today’s report confirms that while much of the country is dealing with warmer outside temperatures, inflation is finally cooling,” said George Mateyo, chief investment officer at Key Private Bank. report to demonstrate that their policies are having the desired effect – that inflation has fallen and growth has not stalled.”
However, central bank policymakers tend to focus more on core inflation, which remains well above the Fed’s 2% annual target. Mattyo said the report was unlikely to prevent the central bank from raising interest rates again later this month.
Fed officials expect inflation to continue falling, especially as housing costs fall, which accounts for about one-third of the consumer price index’s weight. However, the housing index rose 0.4% last month and was up 7.8% year-over-year. The monthly increase accounted for about 70% of the overall CPI increase, the BLS said.
“Housing costs, which account for a large share of inflation, haven’t fallen significantly,” said Lisa Sturtevant, chief economist at Bright MLS. “Because the Fed kept rates so low during the pandemic and then raised them so quickly, Not only did the Fed’s rate hikes reduce housing demand, as expected, but it also severely constrained supply by locking homeowners into homes they would otherwise be listing for sale.”
Wall Street reacted positively to the report, with Dow Jones Industrial Average futures up nearly 200 points. Treasury yields fell across the board.
Traders are still pricing in a strong chance of a quarter-percentage-point rate hike at the Fed’s July 25-26 meeting. However, markets are pricing in this being the last rate hike as officials pause a series of rate hikes to allow the series to play out in the economy.
The headline CPI edged up despite a 0.6% rise in energy prices for the month. However, the energy index is down 16.7% from a year ago, when gasoline was about $5 a gallon.
Food prices rose just 0.1% this month, while used car prices, the main source of the inflation surge in early 2022, fell 0.5%.
Airline fares fell 3% this month and are now down 8.1% year-on-year.
The slowdown in CPI helped boost wages for workers: Real average hourly earnings, adjusted for inflation, rose 0.2% from May to June and 1.2% from a year earlier. Worker wages have lagged behind increases in the cost of living during the peak of a surge in inflation last June.
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