Americans get a break from price rise; inflation up just 0.2%, CPI rises 3%

US inflation sharply cooled last month, offering fresh hope that the Federal Reserve can soon wrap up the most aggressive interest-rate hikes in decades. The consumer price index rose 3 per cent last month from a year ago, the smallest advance in more than two years, according to data out Wednesday from the Bureau of Labor Statistics. Excluding food and energy, the core CPI advanced 4.8 per cent, also the lowest since 2021. Both measures climbed 0.2 per cent from May, less than economists expected.
 

Treasury yields plummeted, the S&P 500 opened higher and the dollar slid following the report. The chances of an additional Fed rate increase after this month slipped to well below 50 per cent.
 

The figures underscore the progress of reducing price pressures since inflation peaked a year ago, aided by more than a year of interest-rate hikes and easing demand. Even so, price pressures are running well above the Fed’s target and will keep policymakers inclined to resume raising interest rates at their July 25-26 meeting.
 

“Inflation is too high. Our target’s 2 per cent,” Richmond Fed President Thomas Barkin said at an event Wednesday after the report. “If you back off too soon, inflation comes back strong, which then requires the Fed to do even more.”
 

A key reason for the slowdown in the overall measure is that the latest figure is compared to June 2022, when a rapid run-up in energy prices following Russia’s invasion of Ukraine helped drive inflation to a four-decade high. 
 

Looking ahead, upcoming year-over-year readings will be compared to relatively lower prints.
 

The report also showed a key services category excluding housing and energy was little changed in June from the prior month. From a year ago, it decelerated to a 4 per cent advance, also the smallest increase since late 2021. Shelter costs, which are the biggest services component and make up about a third of the overall CPI index, climbed 0.4 per cent, including the smallest increase in a key measure of rent since the end of 2021. Many economists expect price gains in the housing categories to continue to ease in the coming months. 
 

Excluding food and energy, goods prices fell for the first time in 2023. Grocery prices, which have been a big strain on Americans’ budgets, were little changed last month. Medical care service costs were also flat.
 

A large part of what’s keeping inflation elevated — as well as powering the rest of the economy — is a resilient labour market. Employers continue to add jobs at a robust pace and wage gains are still strong, enabling Americans to keep spending. Fed officials agree that wages and inflation are related, but they’re divided as to which drives the other.