Inflation is cooling faster than expected, June CPI report shows

Consumer prices are continuing to moderate, with June data showing U.S. inflation is once again cooling after unexpectedly high readings earlier this year. The new report could help bolster the case for an interest rate cut from the Federal Reserve in September.

Consumer prices declined 0.1% in June from May, with inflation curtailed by lower gas prices and a smaller increase in costs at the grocery store. On an annual basis, inflation registered at 3.0%, down from 3.3% in May, indicating that inflation is cooling faster than expected, as economists polled by FactSet had forecasted an increase of 3.1%.

The reading is the lowest since June 2023, when prices also rose at an annual rate of 3%. 

Fed Chair Jerome Powell on Wednesday signaled “considerable progress” in slowing inflation to the central bank’s 2% target. Still, he emphasized that the central bank needs to see “more good data” to have confidence to cut their benchmark interest rate, currently at a two-decade high of 5.3%, which has made it more costly for consumers and businesses borrow money through mortgages and other loans.

“A further deceleration in prices combined with a softening in labor market conditions support a change in message from the Fed, at the July FOMC meeting, opening to the door to rate cuts as soon as the September meeting,” said Rubeela Rarooqi, chief U.S. economist at High Frequency Economics, in a Thursday research note.

The latest inflation report signals that inflation “is moving sustainably down to 2%,” said Olu Sonola, head of U.S. economic research at Fitch Ratings. “Sufficient confidence to begin cutting interest rates is getting closer, but the Fed will likely want to see similar prints in August and September before pulling the trigger on that first rate cut.”

Gasoline prices fell 3.8% in June after falling 3.6% in May, more than offsetting higher housing costs, according to the figures released Thursday by the Bureau of Labor Statistics. Food edged 0.2% higher in June.

Core CPI — excluding volatile food and energy costs — increased 0.1%. 

Stock futures reversed higher in the wake of the report, while Treasury yields fell. 

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