Here’s the inflation breakdown for June 2024 – in one chart

Inflation fell further in June as lower gasoline prices combined with other easing price pressures to bring relief to consumers’ wallets.

The consumer price index, a key gauge of inflation, rose 3% in June from a year earlier, from 3.3% in May, the US Labor Department reported on Thursday.

The CPI measures how quickly prices are changing throughout the US economy. It measures everything from fruit and vegetables to haircuts, concert tickets and household appliances.

Perhaps the “most encouraging” news for consumers is that household inflation has cooled dramatically, said Mark Zandi, chief economist at Moody’s Analytics.

“The prices of staples — takeout, gas, new rents — they haven’t changed in about a year,” Zandi said. “So people are paying the same for those products today that they were a year ago.”

April’s inflation reading is down sharply from its pandemic-era peak of 9.1% in 2022, which was the highest since 1981.

However, it remains above policymakers’ long-term target of around 2%.

“We continue to expect inflation to moderate in the coming months as input cost pressures ease and weaker consumer demand makes it more difficult. [for businesses] to raise prices,” wrote Sarah House and Aubrey George, economists at Wells Fargo Economics, in a note this week.

However, incremental improvements are likely to be “slow,” they wrote.

The US Federal Reserve uses inflation data to help guide its interest rate policy. He raised interest rates to a 23-year high during the pandemic era, raising borrowing costs for consumers and businesses in an effort to tame inflation.

Last month, Fed officials predicted they would begin cutting rates by the end of 2024.

“All indications are that inflation has moderated, is back near the Fed’s target and in line with a rate cut in September,” Zandi said.

There has also been a wide price pull in grocery stores.

Prices of “food at home” have risen by just 1.1% since June 2023, according to CPI data.

Consumers have more “breathing space” in store amid “increased promotional activity” among retailers, while several “major” companies recently announced price cuts “that are likely to put pressure on competitors’ prices.” write economists House and George.

While annual data on inflation trends is useful, economists generally recommend looking at monthly numbers as a better guide to short-term movements and prevailing trends.

They also generally like to review “core” inflation readings. They remove food and energy prices, which can be volatile from month to month.

The monthly CPI reading was 0.1% in June, the smallest increase in about three years, since August 2021. It has fallen for three consecutive months, from 0.4% in March. (To get back on target, economists say the monthly reading should be consistently in the range of about 0.2%).

Core CPI has risen 3.3% since June 2023, the smallest 12-month gain since April 2021.

Housing is the largest component of the core CPI and therefore has a large impact on inflation readings. It accounted for nearly 70% of the total 12-month increase in core CPI.

Housing inflation has moderated much more slowly than expected, one of the main reasons inflation has not yet fallen to target, economists said.

The housing index lags broader trends in the rental market because of the way the government constructs it.

However, economists expect housing to retreat further as inflation for market rents has fallen. For example, the annual rate of inflation for new leases fell to 0.4% in the first quarter of 2024 – lower than its initial level before the pandemic – from record levels of around 12% just two years ago, according to data of the Bureau of Labor Statistics.

There were encouraging signs in the latest CPI report: monthly headline inflation fell to 0.2% after remaining at 0.4% for four consecutive months. It was the smallest monthly gain since August 2021.

“It should continue to cool,” said Joe Seydl, senior markets economist at JP Morgan Private Bank.

“It just takes time,” he added.

Inflation for physical goods rose as the US economy reopened in 2021. The Covid-19 pandemic disrupted supply chains as Americans spent more on their homes and less on services such as dining and entertainment.

Now it’s a different story. Commodity inflation has largely normalized, while services are flat.

“The commodities side looks very good at the moment,” said Olivia Cross, a North American economist at Capital Economics. “Where there is work to be done is in some areas of basic services and housing.”

For example, prices for services such as motor vehicle insurance and medical care rose a “notable” 19.5% and 3.3% as of June 2023, respectively, the BLS said.

A surge in new and used car prices a few years ago is now likely to fuel high inflation for car insurance and repair, as more expensive cars generally cost more to insure and repair, economists said.

It also takes a long time — a year, two or even three — for higher health care labor costs to translate into CPI readings because of a lengthy contracting process, Zandi said. Pandemic-era higher wages in health care are now driving up the medical care CPI and are likely to do so over the next year, he said.

The service sector is generally more sensitive to inflationary pressures in the labor market such as strong wage growth.

Record-high demand for workers as the pandemic-era economy reopened pushed wage growth to the highest level in decades. The labor market has since cooled and wage growth has fallen, although it remains above its pre-pandemic level.

“Inflationary pressure from the labor market has dissipated quite strongly,” Cross said.