According to data released by the US Department of Labor on Thursday, the Consumer Price Index (CPI) for June showed a month-on-month decrease of 0.1% and a year-on-year increase of 3%, marking the lowest annual growth in over three years. This sets the stage for the Federal Reserve to cut interest rates later this year.
The Labor Department’s report indicated that the year-on-year CPI growth for June (3%) decreased compared to 3.3% in May. The index is closely monitored by the Federal Reserve.
Excluding the more volatile food and energy items, the core CPI for June saw a month-on-month increase of 0.1% and a year-on-year increase of 3.3%, marking the smallest annual increase since April 2021. Both the month-on-month and year-on-year increases in core CPI were lower than expected at 0.2% and 3.4%, respectively.
The food index increased by 0.2% month-on-month and 2.2% year-on-year, while the energy index decreased by 2% month-on-month and increased by 1% year-on-year. The drop in gasoline prices helped slow inflation in June, with gasoline prices decreasing by 3.8% month-on-month and 2.5% year-on-year.
Housing-related data has been a key issue for the Federal Reserve in addressing inflation problems, as it holds significant weight in the CPI. A new report released by the Labor Department on Thursday showed that the increase in housing costs for June slowed compared to May, with a month-on-month increase of 0.2% and a year-on-year increase of 5.2%.
Additionally, new car prices decreased by 0.2% month-on-month and 0.9% year-on-year in June, while used car prices dropped by 1.5% month-on-month and 10.1% year-on-year.
Peter Cardillo, Chief Market Economist at Spartan Capital Securities, told Reuters, “Clearly, these numbers are good; this report is good news for the Federal Reserve. It’s good news for consumers and good news for the economy. The market will like these numbers.”
Cardillo added that this report essentially confirms Federal Reserve Chairman Powell’s idea that bringing inflation down to a 2% target is achievable. Powell has indicated a rate cut in September. These data effectively prove this point.
“If we get another good inflation report in August, then I think we’ll have at least two rate cuts this year, possibly even three,” Cardillo said.
On July 9th, Jerome Powell stated during his speech to the Senate that the US is “no longer an overheated economy,” and the job market has cooled off from the extreme conditions during the pandemic, recovering in many aspects to pre-crisis levels.