Monthly inflation fell in June for the first time in more than four years, providing further assurance that the Federal Reserve will begin cutting interest rates later this year.
this consumer price indexThe Labor Department reported on Thursday that a broad measure of the cost of goods and services in the U.S. economy fell 0.1% from May, with the 12-month cost rate at 3%, near the lowest level in more than three years. The all-items index fell from 3.3% in May, when it was unchanged from the previous month.
This is the first monthly decline since May 2020.
Excluding volatile food and energy costs, the so-called core Consumer Price Index (CPI) rose 0.1% on the month and 3.3% from a year ago, compared with expectations of 0.2% and 3.4% respectively, according to the Bureau of Labor Statistics report.
The annual increase in core rates was the smallest since April 2021.
A 3.8% drop in gasoline prices kept inflation in check this month, offsetting a 0.2% rise in food and home prices. Housing-related costs have been one of the most stubborn components of inflation, accounting for about a third of the CPI’s weight, so the pullback in growth is another positive sign.
Stock futures rose after the news, while bond yields fell.
Chris Larkin, managing director of trading and investments at Morgan Stanley E-Trade, said the June inflation report means the Fed is “one step closer to cutting interest rates in September.” “A lot can happen between now and September 18, but unless most of the data returns to ‘hot’ territory, the Fed’s case for not cutting rates may no longer be sound.”
In addition to falling energy prices and a slight increase in housing costs, used car prices fell 1.5% this month and were down 10.1% from the same period last year. The program was one of the main drivers of the initial surge in inflation in 2021.
Mild inflation report means actual average hourly earnings According to a separate report from the U.S. Bureau of Labor Statistics, workers’ wages increased 0.4% month over month, but they were still only up 0.8% compared with a year ago.
Although Federal Reserve policymakers have set annual inflation at 2%, the June Consumer Price Index (CPI) report provided further evidence that price trends are moving in the right direction.
CPI reached a peak of over 9% in June 2022, prompting the Federal Reserve to react and end a series of interest rate hikes in July 2023. Inflation has fallen significantly over the past few years.
After the report was released, traders in the federal funds futures market increased bets that the central bank would cut interest rates starting in September.
“The latest inflation data puts us firmly on the path to a rate cut by the Fed in September,” said Seema Shah, chief global strategist at Principal Asset Management. “The smallest rise in core CPI since 2021 certainly gives the Fed confidence that the next Hot CPI data for the first quarter is a hurdle and sets the stage for multiple rate cuts this year.”
Although Fed officials signaled at their June meeting that they may cut interest rates by a quarter of a percentage point this year, the market is currently pricing in a first rate cut in September, followed by Interest rates will be cut at least once by the end of the year. In addition, traders even predict that the probability of a third rate cut in December is about 40%.
In other economic news Thursday, the Labor Department reported weekly initial jobless claims fell to 222,000, a decrease of 17,000 from the previous week and the lowest level since June 1. , dropped to 1.85 million.
Correction: The Labor Department released consumer price index (CPI) data on Thursday. An earlier version incorrectly described the day.
