Inflation dropped in June to the lowest pace in more than two years, providing welcome relief to American consumers who have been crushed by unrelenting price increases.
The Labor Department said Wednesday that the consumer price index (CPI), a broad measure of the price for everyday goods including gasoline, groceries and rents, rose 0.2% in June from the previous month.
Prices climbed 3% on an annual basis, slightly below the 3.1% increase forecast by Refinitiv economists.
Although inflation has cooled from a peak of 9.1%, it still remains above the Federal Reserve’s 2% target rate.
Other parts of the report pointed to a slower retreat for inflation. Core prices, which exclude the more volatile measurements of food and energy, climbed 0.2%, or 4.8% annually. Both of those figures are lower than Refinitiv economists expected. However, core prices remain well above the Fed’s target.
“The Fed’s fight against inflation is working, but it is too early to declare victory,” said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University.
The report is the last before the Fed’s next policy-setting meeting on July 25-26 and will have major implications for the U.S. central bank, which raised interest rates 10 straight times over the course of 15 months in a bid to crush out-of-control inflation.
Despite the slowdown in inflation, policymakers are widely expected to approve another quarter-percentage point hike at the conclusion of their two-day meeting. An overwhelming percentage of traders — more than 92% — anticipate the Fed will lift interest rates again at the end of the month.
Stocks jumped after the report fueled investors’ hopes that the Fed will soon conclude its tightening campaign, with all three of the major U.S. benchmarks rising.
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Scorching-hot inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations.
Consumers continued to see some reprieve in June. The price of used cars and trucks tumbled 0.5% over the month and is down 5.2% compared with the same time one year ago. Airline tickets also plummeted 8.1% in June, following declines in both April and May.
Other price gains proved persistent and stubbornly high in June. Shelter costs, which account for about 40% of the core inflation increase, rose 0.4% for the month and are up 7.8% over the past year. Energy prices also jumped 0.6% last month, including a 1% uptick in gasoline costs. However, gas prices are down 26.5% compared with the same time last year, when the average cost for a gallon of regular was running around $4.65.
Food prices, a visceral reminder of inflation for many Americans, also inched higher in June. Food costs rose 0.1% in June and are up 5.7% compared with the same time last year.
“Prices for everything from eggs to used cars dropped in June, causing a big deflation in inflation,” said Robert Frick, a corporate economist at the Navy Federal Credit Union. “By one measure, inflation is just one-third of what it was a year ago. However, this is not yet a turning point. Core inflation will prove tougher to beat.”