CPI Report “US Inflation Slows in June as Consumer Prices Rise Cautiously”

CPI Report “US Inflation Slows in June as Consumer Prices Rise Cautiously”

Consumer prices in the United States experienced a modest increase in June, resulting in the smallest annual rise in over two years. While inflation continues to subside, it is unlikely to deter the Federal Reserve from resuming its interest rate hikes later this month.

The Labor Department reported that the Consumer Price Index (CPI) rose by 0.2 percent last month, following a slight 0.1 percent increase in May. This upswing in the CPI was primarily driven by higher gasoline prices and rents, which offset a decline in the price of used motor vehicles.

Over the 12 months leading up to June, the CPI saw a 3.0 percent gain. This represents the smallest year-on-year increase since March 2021, following a 4.0 percent rise in May.

Economists surveyed by Reuters had anticipated a 0.3 percent increase in the CPI for June, with a year-on-year climb of 3.1 percent.

Although annual consumer prices have significantly decreased from their peak of 9.1 percent in June 2022, which marked the largest increase since November 1981, inflation remains well above the Federal Reserve’s 2 percent target, especially considering the tight labor market conditions.

While employment gains in June were the smallest in 2.5 years, the unemployment rate remained close to historically low levels, and wage growth remained robust. Financial markets have already priced in a 25 basis points interest rate increase at the Federal Reserve’s policy meeting scheduled for July 25-26, according to CME’s FedWatch tool.

After embarking on its most rapid monetary policy tightening campaign in over four decades, the Federal Reserve refrained from raising rates in June. The central bank has increased its policy rate by a total of 500 basis points since March 2022.

The recent data shows an improving inflation environment, with a moderation in the pace of underlying price increases. Excluding food and energy categories, the core CPI rose by 0.2 percent in June. This is the first time in six months that the core CPI did not post monthly gains of at least 0.4 percent. Over the 12 months leading up to June, the core CPI saw a 4.8 percent increase, down from a 5.3 percent rise in May.

Economists predict that core inflation will continue to recede in the months ahead, driven by a cooling labor market and independent indicators showing a downward trend in rents. It’s worth noting that rent measures in the CPI typically lag behind independent gauges by several months.

In June, the Institute for Supply Management’s measure of prices paid by services businesses for inputs dropped to its lowest level since March 2020. Economists consider the ISM services prices paid measure as a reliable predictor of personal consumption expenditures (PCE) inflation. There is a correlation between this price gauge and the core PCE services excluding housing, which is closely monitored by Federal Reserve officials to assess progress in their efforts to combat inflation.

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