(Washington) Inflation in the United States slowed in June for the third consecutive month, a sign that the worst price surge in four decades is gradually fading and that the United States Federal Reserve (Fed) could soon lower its key rate.
The consumer price index (CPI) fell 0.1% from May to June after holding steady the previous month, the Labor Department said Thursday in a better-than-expected report. It was the first monthly decline in the CPI since May 2020, when the economy was crippled by the pandemic.
Compared to the previous year, prices increased by 3% in June, a rate lower than the 3.3% recorded in May.
The latest inflation figures will likely help convince the Fed that inflation is returning to its 2% target.
A brief uptick in inflation earlier this year led policymakers to lower their expectations for rate cuts. They said it would take several months of modest price increases before they felt confident enough to lower their policy rate, now at a 23-year high of 5.3 percent.
If inflation remains low through the summer, most economists expect the Fed to begin cutting its benchmark rate in September.
“This confirms that there is very little chance of inflation reaccelerating and that it is time for the Fed to cut rates,” said Luke Tilley, chief economist at Wilmington Trust, a wealth management firm.
Mr. Tilley noted that rental prices and home ownership costs eased significantly last month.
Even as inflation slows, the costs of food, rent, health care and other necessities remain much higher than they were before the pandemic — a source of public discontent and a threat to President Joe Biden’s re-election bid.
Gas prices plummet
In June, gas prices plunged for a second straight month, falling 3.8% on average nationwide from May. Gas prices are now down 2.5% from a year ago.
Food prices rose 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 spike. Average American wages have also risen sharply since then.
Excluding food and energy, so-called core prices rose by only 0.1% between May and June, below the 0.2% increase in the previous month. Compared with a year earlier, core prices rose by 3.3% in June, compared with 3.4% in May.
The cost of new and used cars also fell last month. Used car prices, which had soared during the recovery from the pandemic, fell 10.1% last year.
Rental and ownership costs, which account for more than a third of the entire CPI index, rose at a slower pace last month, up 0.3% from May to June.
This is the smallest increase in nearly three years, and could signal that a long-awaited slowdown in rental price increases has finally arrived. However, compared to a year earlier, rents still rose 5.1% in June, a much faster pace than before the pandemic.
Rental costs are typically among the last inflationary dominoes to fall, which is why economists are encouraged by June’s increase. A surge in apartment construction over the past two years has brought many new homes online, forcing some landlords to revise rents to attract tenants.
“It’s a very, very good sign that weakness [des prix] “What we’ve been expecting for the past year and a half is finally starting to happen,” said Alan Detmeister, an economist at UBS Investment Bank.
The Fed has held its benchmark interest rate steady for nearly a year after raising it aggressively in 2022 and 2023, driving up the cost of mortgages, auto loans, credit cards and other forms of borrowing for individuals and businesses.
Inflation is now well below its peak of 9.1% reached in mid-2022. Other measures suggest the economy is healthy, though there is a slowdown: unemployment is still relatively low, hiring remains steady, and many consumers continue to travel, eat out, and spend on entertainment.