Consumer prices fell for the first time since 2020, according to the latest data from the Bureau of Labor Statistics.
- M-O-M: In June, the Consumer Price Index (CPI) dropped by 0.1%, down from no growth in May and the first drop since May 2020.
- Y-O-Y: The monthly decrease brought the year-over-year inflation rate down to 3.0%, down from 3.3% in May and the lowest level since June last year.
Energy Prices: The primary factor behind the drop in consumer prices was a significant decline in energy costs, which fell by 2.0% in June. This reduction has moderated the annual energy price growth to 1.0%, down from 3.7% in May and the lowest rate since February.
- Gasoline prices saw a steep decline, dropping 3.8% in June, slightly more than May’s 3.6%, and the largest decrease since October 2023.
Food Prices: Conversely, food prices experienced an uptick, rising by 0.2% in June, up from 0.1% in May, marking the highest increase since January. Annually, food prices have increased by 2.2%, slightly higher than May’s four-year low of 2.1%.
- A disparity persists between grocery prices and dining out costs. While food at home rose slightly from May’s four-year low of 1.0%, the cost of eating out is up by 4.1%, maintaining a three-point gap.
Core Prices: Excluding food and energy, core prices edged up by 0.1% in June, down from May’s 0.2% rise, registering the smallest increase since January 2021. On an annual basis, core prices increased by 3.3%, down from 3.4% in May, reaching the lowest level since April 2021.
- Contributing to this decrease were a 1.5% drop in used car prices, a 0.5% decline in transportation services, and a 0.2% reduction in new vehicle prices.
Housing: Shelter costs showed a modest rise of 0.2% in June, down from May’s 0.4% increase, the smallest rise since August 2021. Year-over-year, shelter costs have grown by 5.2%, down from 5.4% in May, marking the lowest level since April 2022.
Beat the Street: The latest CPI report surpassed economists’ expectations, who had anticipated a 0.1% increase in the headline number and a 0.2% rise in core prices, with no change in the annual index.
- 10-YR: Following the release of the data, financial markets reacted positively. The yield on the 10-year Treasury fell to 4.19%, dropping 9 basis points from the opening and reaching its lowest level since early March.
- Fed Watch: The positive inflation report has shifted market expectations regarding Federal Reserve policy. CME’s Fed tracker now indicates an 84% chance of a rate cut in September, up from 69% yesterday and just 46% one month ago.
What They’re Saying: Ben Casselman of The New York Times highlighted the longer-term perspective on Twitter: “At 3% year-over-year, inflation is no longer outside historical norms (though it is still higher than immediately prepandemic). And over the past three months, rents have risen at an annual rate of just 1.1%.”
- Nick Timiraos emphasized the three-month average, noting, “Core CPI on a three-month annualized basis fell in June to 2.1%, the lowest reading since the pandemic.”
Overall, the June CPI report presents a cautiously optimistic view of the inflation landscape, suggesting that price pressures are easing, potentially paving the way for more favorable economic conditions in the coming months.
