WASHINGTON (AP) – Inflation in the United States cooled in June for the third month in a row, a sign that the worst price increase in four decades is fades continuously and may soon bring interest rate cuts from the Federal Reserve.
In a better-than-expected report, consumer prices fell 0.1% from May to June after remaining flat last month, the Labor Department said on Thursday. It was the first monthly decline in headline inflation since May 2020, when the economy was paralyzed by the pandemic.
And measured from a year ago, prices rose 3% in June, cooler than the annual rate of 3.3% in May.
The latest inflation readings are likely to help convince Fed policymakers that inflation is returning to their 2% target. A brief spike in inflation earlier this year had caused officials to scale back their expectations for interest rate cuts. Policymakers said they would need to see several months of mild price increases to feel confident enough to cut their key rate from its 23-year high.
The June figures will qualify as another installment of the best inflation data the central bank has been looking for. If inflation remains low over the summer, most economists expect the Fed to begin cutting its key rate in September.
“This confirms that there is very little chance of inflation re-accelerating and that it is time for some rate cuts from the Fed,” said Luke Tilley, chief economist at Wilmington Trust, a wealth management firm.
Tilley noted that rental measures and home ownership costs cooled significantly last month, a much-anticipated development. Rent prices typically don’t change much from month to month, he noted, meaning June’s slower price increases will likely continue.
AP correspondent Shelley Adler reports that the steady numbers show that inflation is slowing.
Also on Thursday, Mary Daly, a top Fed official, suggested the central bank should cut rates soon. Daly, president of the Fed’s San Francisco branch, said she believed slowing inflation and a cooling labor market justified a rate cut. She did not address the specific timing of any rate cuts.
“I see it as likely that some policy adjustments will be warranted,” Daly said on 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 — a source of public discontent and a potential threat to President Joe Biden’s re-election bid.
In June, gas prices fell for the second month in a row, falling an average of 3.8% nationwide from May. Gas prices are now down 2.5% from a year ago. (They rose this month and averaged $3.54 nationwide on Thursday, according to AAA, up 10 cents from a month ago.)
Food prices rose a slight 0.1% last month, the first increase in five months, and are only 1.1% higher than a year ago. Food prices are still up, on average, 21% from March 2021, when inflation began to pick up, although Americans’ average wages have also risen significantly since then.
Excluding volatile food and energy costs, so-called core prices rose just 0.1% from May to June, below the 0.2% rise in the previous month. Measured from 12 months ago, core prices rose 3.3% in June, from 3.4% in May. Core prices are thought to provide a particularly clear signal of where inflation may be headed.
The cost of new and used cars also fell last month. Used car prices, which had risen during the recovery from the pandemic, fell 10.1% last year.
Renting and home ownership costs, which account for more than a third of the entire consumer price index, rose at a slower pace last month, by 0.3% from May to June. This is the softest such increase in nearly three years and could signal that a long-awaited slowdown in rental price growth has finally arrived. Compared to a year ago, rents in June were still up 5.1%, a much faster rate than before the pandemic.
Rent costs are usually among the last inflationary dominoes to fall, which is why economists are encouraged by the smaller increase in June. A surge in apartment construction in the past two years has brought many new units online, forcing some landlords to keep rents under control to attract tenants. (The government also uses rent data to calculate the costs of home ownership, which grew more slowly last month after years of rapid acceleration.)
Most of the other major factors of inflation over the past three years – food, used cars, gas – have either declined or declined. Rental price increases have remained consistently high through June.
“This is a really, really good sign that the (price) weakness that we’ve been waiting for a year and a half is finally starting to show,” said Alan Detmeister, an economist at UBS Investment Bank. The pullback in housing costs, he said, “will make (Fed officials) feel that the slowdown in inflation is a little more sustainable.”
However, an increase in her rent earlier this year dealt a painful blow to Deborah Stettler’s finances. Stettler, a 51-year-old resident of Quincy, Massachusetts, said her rent went up in January from $1,500 a month to $2,000.
A single mother with a 16-year-old son, Stettler is also still struggling with the sharp rise in food prices over the past three years. She gets about half of her family’s food from a local food pantry. For the rest, she seeks grocery store sales.
Stettler got a new job about nine months ago, in children’s services, after previously working at a YMCA branch.
“The rent has gone up, the food has gone up, the pay doesn’t go up,” she said. “I’m still going to the food pantry for food assistance because by the time you pay all the bills, you don’t have much money for food.”
Many consumers have cut back on their grocery spending, looking for deals and cheaper alternatives to brand names. On Thursday, PepsiCo admitted that its sales volume fell 4% in North America in the April-June quarter after aggressively raising prices for two years.
“For niche consumers, we need some new entry price points and maybe some new promotional mechanics that don’t expect the consumer to invest so much money in buying a salty snack,” said CEO Ramon Laguarta.
The Fed has kept its key interest rate unchanged for nearly a year after raising it aggressively in 2022 and 2023, leading to costlier mortgages, car loans, credit cards and other forms of consumer borrowing. and business.
Inflation is now well below its peak of 9.1% in mid-2022. Other measures suggest the economy is healthy, although slowed down: Unemployment is still relatively lowJobs remains stable AND many customers continue to travel, eat out and spend on entertainment.
In the second half of 2023, core inflation cooled steadily, raising expectations that the Fed would cut the key rate as many as six times this year. But then rapidly rising costs for auto insurance, apartment rents and other services kept inflation high in the first three months of this year, prompting Fed officials to cut their rate cut forecasts in 2024 from three to just one. Wall Street traders expect two rate cuts this year, with the first coming in September.
IN testimony Tuesday to CongressFed Chairman Jerome Powell noted that the labor market has “cooled significantly” and is “not a source of broad inflationary pressures.” This marked a marked departure from his past comments, which had suggested that rapid wage growth could perpetuate inflation because some companies are likely to raise their prices to offset their higher labor costs.