WASHINGTON (AP) — U.S. inflation fell for a third straight month in June, signaling an end to the worst price surge in four decades. Gradually fades away And there’s a chance the Federal Reserve will cut interest rates soon.
The Labor Department’s consumer price index released Thursday beat expectations, showing it was flat last month but fell 0.1% from May to June, the first monthly decline in inflation since May 2020, when the pandemic crippled the economy.
Also, compared to a year ago, prices were up 3% in June, slower than the 3.3% annualized rate in May.
The latest inflation reading will help convince Fed policymakers that inflation is on its way back to its 2% target. A brief rise in inflation earlier this year led officials to scale back their outlook for rate cuts. Policymakers have said they need several months of modest price increases before they are confident enough to cut their key interest rate, which is at a 23-year high.
The June figure will be the latest in a push for better inflation data from the central bank, which has been pushing for more than 100,000 jobs since 2013. If inflation remains low through the summer, most economists expect the Fed to start cutting interest rates in September.
“This confirms that a resurgence in inflation is highly unlikely and that it may be time for the Fed to cut rates,” said Luke Tilley, chief economist at asset manager Wilmington Trust.
That’s a long-awaited development, as both rent and homeownership cost measures fell sharply last month, Tilley said. He noted that rents typically don’t change much from month to month, so the slowdown in price growth in June will likely continue.
Associated Press reporter Shelley Adler reports that consistent numbers suggest inflation is slowing.
Also on Thursday, Mary Daly, a key Fed official, suggested the central bank should cut interest rates soon. The San Francisco Fed president said she thinks slowing inflation and a cooling job market justify a cut in interest rates. She gave no timeline for when rates might be cut.
“I think it’s likely that some policy adjustments will be needed,” Daly said in a conference call with reporters.
Even as inflation slows, the costs of food, rent, health care and other necessities remain far higher than they were before the pandemic, causing public frustration and posing a potential threat to President Joe Biden’s reelection.
Gas prices fell for the second straight month in June, dropping 3.8% nationwide from May. Gas prices are now 2.5% lower than they were a year ago. (Gas prices have risen this month, with the national average on Thursday rising 10 cents from last month to $3.54, according to AAA.)
Grocery prices rose 0.1% last month, the first increase in five months, and were just 1.1% higher than a year ago. Average American wages have also risen sharply since then, but food prices are up an average of 21% since March 2021, when inflation began to spike.
Core prices, which exclude volatile food and energy prices, rose just 0.1 percent from May to June, down from a 0.2 percent increase in the previous month. Looking 12 months ahead, core prices rose 3.3 percent in June, down from a 3.4 percent increase in May. Core prices are thought to provide a particularly clear signal of where inflation is likely to head.
Prices for new and used cars also fell last month. Used car prices, which had soared during the pandemic recovery, have fallen 10.1% over the past year.
Rent and homeownership costs, which account for more than a third of the overall consumer price index, slowed their pace of increase last month, rising 0.3% from May to June. That was the slowest increase in nearly three years and may signal that a long-awaited slowdown in rental price growth is finally here. Rent prices rose 5.1% in June from a year ago, a much faster rate than before the pandemic.
Economists were encouraged by June’s modest increase, because rents are typically among the last to fall in the inflation domino effect. A surge in apartment construction over the past two years has brought many new units online, forcing some landlords to curb rents to attract renters. (The government also uses rent data to calculate the cost of homeownership, which rose more slowly last month after years of rapid increases.)
The main drivers of inflation over the past three years — food, used cars and gasoline — have remained steady or declined. Rental price increases had remained high through June.
“This is a really good sign that the (price) weakness that we’ve been expecting for a year and a half is finally starting to play out,” said Alan Detmeister, an economist at UBS Investment Bank. The home price decline “may make (Fed officials) feel that the slowdown in inflation is a little more sustainable,” he said.
Still, rising rent prices earlier this year hit Deborah Stettler’s finances hard. Ms. Stettler, 51, of Quincy, Massachusetts, said her rent jumped from $1,500 to $2,000 a month in January.
Stettler, a single mother of a 16-year-old son, is also still struggling with the rising food prices of the past three years. She gets about half of her family’s food from a local food pantry and hunts for sales at grocery stores for the rest.
Stettler started her new job in child welfare services about nine months ago, after previously working at a YMCA branch.
“My rent has gone up, my food costs have gone up, but my pay hasn’t,” she said. “I still go to the food pantry for food because by the time I pay all my bills, I barely have any money left for food.”
Many consumers are cutting back on their grocery spending and looking for cheaper options and better deals than name brands. The company acknowledged that sales had declined. The company saw its North American sales increase by 4% in the April-June quarter after two years of aggressive price hikes.
“For certain consumers, we need a new entry price point and perhaps new promotional mechanisms so that consumers aren’t expected to spend as much cash on salty snacks,” CEO Ramon Laguarta said.
The Federal Reserve has kept its key interest rate unchanged for nearly a year after raising it aggressively in 2022 and 2023, leading to higher costs for mortgages, auto loans, credit cards and other borrowing for consumers and businesses.
Inflation is currently well below a peak of 9.1% expected in mid-2022. Other indicators suggest the economy is in good health. It’s slowing downUnemployment is Still relatively low,employment stable and Many consumers Continue spending on travel, dining out, and entertainment.
Core inflation has fallen steadily in the second half of 2023, raising expectations that the Fed will cut rates as many as six times this year. But inflation remained elevated in the first three months of the year as the costs of auto insurance, apartment rents and other services soared, leading Fed officials to lower their forecast for rate cuts in 2024 to one from three. Wall Street traders expect two rate cuts this year, with the first coming in September.
in Congressional testimony on TuesdayFed Chairman Jerome Powell noted that the job market is “substantially cooling” and that it is “not a source of broad inflationary pressures,” marking a sharp shift from past comments in which he suggested rapid wage growth could perpetuate inflation because some companies would likely raise prices to offset rising labor costs.
