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Inflation fell further in June as lower gasoline prices and an easing of other price pressures brought relief to consumers’ wallets.
this consumer price indexThe U.S. Labor Department reported Thursday that a key inflation gauge rose 3% annually in June, down from 3.3% in May.
this consumer price index A measure of how quickly prices change in the U.S. economy. It measures everything from fruits and vegetables to haircuts, concert tickets and household appliances.
Mark Zandi, chief economist at Moody’s Analytics, said perhaps the “most encouraging” news for consumers is that inflation in household staples has cooled significantly.
“The prices of essential items — groceries for the household, gas, new lease rent — haven’t changed in about a year,” Zandi said. “So people are paying the same prices for those staples today as they were a year ago.”
April inflation The reading is down sharply from a peak of 9.1% during the pandemic in 2022, which was the highest level since 1981.
However, it is still higher than policymakers expected Long-term goalsabout 2%.
“We continue to expect weaker consumer demand and (businesses) to be more resilient as input cost pressures ease,” economists Sarah House and Aubrey George of Wells Fargo Economics wrote in a note. It is difficult to raise prices and inflation will fall further in the coming months.
However, additional improvements may “come slowly,” they wrote.
Good sign for Fed rate cut in September
The Fed uses inflation data to help guide its interest rate policy. it raise interest rates to a 23-year high amid the Covid-19 pandemic, which has pushed up borrowing costs for consumers and businesses to tame inflation.
Last month, Fed officials predicted they would Start cutting Rates through the end of 2024.
“All signs are that inflation has slowed, returning to levels close to the Fed’s target and consistent with the September rate cut,” Zandi said.
Gasoline prices weigh on inflation
Grocery store prices have also fallen sharply.
According to CPI data, “household food” prices have increased by only 1.1% since June 2023.
Economists Howes and George write that with retailers “increasing promotions” and consumers having more “breathing room” in stores, while some “big” companies have recently announced price cuts, “this could give Competitor pricing creates pressure.”
‘Core’ CPI at lowest level in three years
While annual data on inflation trends are helpful, economists generally recommend looking at monthly data to get a better guide to short-term trends and current trends.
They also usually like to examine “core” inflation data. They exclude food and energy prices, which can fluctuate from month to month.
Monthly core CPI reading was 0.1% June’s increase was the smallest in about three years since August 2021. Economists said that to get back on target, monthly readings should consistently stay within a range of around 0.2%.
Since June 2023, “core” CPI has increased by 3.3%, which is the smallest 12-month increase since April 2021.
Housing is the largest component of the core CPI and therefore has a huge impact on the inflation data. It accounted for nearly 70% of the total 12-month increase in core CPI.
Housing inflation has Moderation is much slower than expectedEconomists say this is one of the important reasons why inflation has yet to fall back to its target.
Because of the way the government structures it, the housing index lags behind broader trends in the rental market.
However, economists expect demand for housing to slow further as market rental inflation falls sharply. For example, annual inflation for new leases fell to 0.4% in the first quarter of 2024 from a record high of about 12% two years ago, according to the U.S. Bureau of Labor Statistics, and is below the pre-pandemic baseline data.
There are encouraging signs in the latest CPI report. The monthly housing inflation rate fell to 0.2% after holding at 0.4% for four consecutive months. This was the smallest monthly gain since August 2021.
“The market should continue to cool,” said Joe Seidel, senior market economist at J.P. Morgan Private Bank.
“It just takes time,” he added.
Services inflation is the problem
As the U.S. economy reopens in 2021, inflation for physical goods surges.
Things are different now. Goods inflation has basically normalized, while services are a fly in the ointment.
“The commodities side is looking very benign at the moment,” said Olivia Cross, North America economist at Capital Economics. “The work that needs to be done is in some areas of core services and shelter. ”
For example, the BLS said prices for services such as motor vehicle insurance and medical care have increased “significantly” by 19.5% and 3.3%, respectively, since June 2023.
Prices for staples — household food, gasoline, new lease rent — haven’t changed in about a year.
Mark Zandi
Chief Economist, Moody’s Analytics
Economists say a surge in new and used car prices a few years ago may now fuel high inflation in auto insurance and repairs, as expensive cars often cost more to insure and repair.
Zandi said higher labor costs in health care also take a long time – one, two or even three years – to translate into the Consumer Price Index (CPI) due to longer contracting processes. Rising wages in health care during the pandemic are pushing up the health care consumer price index and may do so in the coming year, he said.
Services are generally more sensitive to inflationary pressures in the labor market, such as strong wage growth.
As the pandemic-era economy reopens, demand for workers is at an all-time high, driving wage growth to its highest level in decades. labor market has since cooled Wage growth has declined but remains above pre-pandemic levels.
“Inflationary pressures from the labor market have dissipated quite strongly,” Cross said.
