WASHINGTON (Reuters) – U.S. consumer prices rose modestly in June and posted their smallest annual increase in more than two years as inflation eased further, but perhaps not fast enough to dissuade the Federal Reserve from resuming rate hikes this month.
The report from the Labor Department on Wednesday also showed that core consumer prices posted their smallest monthly gains since August 2021. A significant slowdown in core inflation sent the stock market rally, with investors convinced that the US central bank’s fastest tightening cycle since was on. The eighties are coming to an end.
“Inflation is not dead, but the extraordinary pandemic push of prices from shortages and a shift to stay-at-home purchases is clearly over, and for the first time the Federal Reserve has the upper hand in its fight against inflation,” said Christopher Rupke. Chief Economist at FWDBONDS in New York.
The Consumer Price Index rose 0.2% last month after rising 0.1% in May. Shelter, which includes rents, accounted for 70% of the CPI rise last month. There was also a rise in car insurance rates as well as petrol prices, which rose by 1.0%. These gains offset lower prices for used cars and trucks.
Food prices increased by only 0.1%. The cost of food consumed at home remains unchanged. The prices of fruits and vegetables increased by 0.8%, but the prices of meat and fish were cheaper, and the price of eggs decreased by 7.3%.
In the 12 months through June, the CPI rose 3.0%. This was the smallest year-on-year increase since March 2021 and followed a 4.0% rise in May.
Economists polled by Reuters had expected the consumer price index to rise 0.3 percent last month and 3.1 percent on an annual basis.
Annual increases in consumer prices have fallen sharply from their peak of 9.1% in June 2022, which was the largest increase since November 1981, as last year’s large increases fell behind the accounts. However, inflation remains well above the Fed’s 2% target, with the labor market still tight.
Although employment gains were the smallest in 2-1/2 years in June, the unemployment rate fell near historically low levels and wage growth was strong.
US stocks opened sharply higher. The dollar fell against a basket of currencies. US Treasury bond prices rose.
Kernel hypertrophy slow down
Financial markets priced in a rate increase of about 25 basis points at the Fed’s policy meeting on July 25-26, according to CME’s FedWatch tool.
The US central bank skipped raising interest rates in June. The Fed has raised its policy rate by 500 basis points since March 2022.
The improvement in the inflation environment was confirmed by the moderation in the pace of increase in core prices.
Excluding the volatile food and energy categories, the CPI rose 0.2% in June, the smallest rise since August 2021. It was the first time in six months that the core CPI did not post a monthly gain of at least 0.4%.
Core CPI rose 0.4% in shelter costs, which followed a 0.6% rise in May. Owner’s equivalent rent, a measure of the amount homeowners will pay for rent or earn from renting their properties, rose 0.4% after rising 0.5% for three straight months.
The cost of auto insurance jumped 1.7%, while clothing prices rose 0.3%. However, the prices of used cars and trucks decreased by 0.5% and the cost of new cars was unchanged.
Airline tickets were 8.1% cheaper. There were also declines in the prices of telecommunications services, furnishings and household operations. Health care costs did not change, as did prescription drug prices.
In the 12 months through June, the core CPI rose 4.8%. This was the smallest year-over-year gain since October 2021 and followed a 5.3% increase in May.
Core inflation is expected to continue to ease in the coming months, with the labor market slowing and independent measures showing rents on a downward trend. Rental actions in the CPI tend to lag independent measures by several months.
The Institute for Supply Management’s measure of the prices service firms pay for inputs in June fell to the lowest level since March 2020. Economists view the measure of prices for ISM services paid as a good indicator of PCE inflation.
They see a correlation between this price measure and core personal consumption expenditure services excluding housing. The so-called supernuclear is being watched closely by Federal Reserve officials to gauge progress in the fight against inflation.
(Reporting by Lucia Motecani) Editing by Chizu Nomiyama and Andrea Ricci
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