The U.S. Consumer Price Index (CPI) rose 0.2% in June, below the consensus forecast of 0.3%. The annual rate of inflation also slowed to 3%, from 4% in May. This is the lowest annual inflation rate since March 2021.
The slowdown in inflation was driven by a number of factors, including a decline in energy prices. The energy index fell 0.2% in June, after rising 1.4% in May. This was the third consecutive monthly decline in energy prices.
Other major components of the CPI also rose at a slower pace in June. The food index increased 0.1%, after rising 0.2% in May. The shelter index rose 0.3%, after rising 0.4% in May.
The slowdown in inflation is a welcome development for the Federal Reserve, which is trying to bring inflation back down to its 2% target. However, the Fed is likely to continue to raise interest rates in an effort to cool the economy and bring inflation down further.
Analysts’ Take
George Mateyo, chief investment officer at Key Private Bank, said:
There has been significant progress made on the inflation front, and today’s report confirmed that while most of the country is dealing with hotter temperatures outside, inflation is finally cooling. The Fed will embrace this report as validation that their policies are having the desired effect – inflation has fallen while growth has not yet stalled.
Lisa Sturtevant, chief economist at Bright MLS added:
Housing costs, which account for a large share of the inflation picture, are not coming down meaningfully. Because rates had been pushed so low by the Fed during the pandemic and then increased so quickly, the Federal Reserve’s rate increases not only reduced housing demand — as intended — but also severely limited supply by locking homeowners into homes they would have otherwise listed for sale.
What’s Next?
The next CPI report will be released on August 10. Economists expect the annual rate of inflation to remain below 4% in August. However, it is still too early to say whether inflation has peaked.
The Fed is expected to continue to raise interest rates in an effort to cool the economy and bring inflation down further. The next interest rate decision will be announced on July 27.
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