Inflation for June continued the trend of slowing inflation from earlier months as CPI inflation fell 0.1% from May and rose just 3% annually. Both figures beat expectations of an increase of 0.1% and a rise of 3.1%. Additionally, the monthly decline is the first in 4 years and annual inflation is at its slowest since early 2021.
Similarly, core inflation, which excludes volatile goods like food and energy, rose 0.1% from May and 3.3% yearly, reaching a 3 year low.
A major component of the decline in inflation was housing costs. Housing costs rose just 0.2% and 5.2%, which is the slowest yearly growth since 2022. This slowing housing price growth is crucial to normal inflation because housing makes up almost ⅓ of the CPI.
This slowing inflation, while good for the economy, has come about thanks to slower growth in the economy caused by high interest rates. In fact, Federal Reserve Chairman Jerome Powell mentioned the possibility of “unduly [weakening] economic activity and employment” due to policy restraint during his testimony to Congress. This narrative coming directly from the horse’s mouth along with good inflation figures suggests that the hopes of a September interest rate cut are very possible if inflation continues to move downwards in the coming months.
However, inflation is a fickle beast that can betray expectations, as seen in the first quarter of this year. Contributing to this rationale of continued inflation is June’s PPI figures. Unlike CPI, which tracks consumer prices, PPI tracks the prices of goods for producers and gives a forecast of what future inflation may look like. Unfortunately, the PPI figures for June rose 0.2% from May and 2.6% annually, which was higher than expected. This hotter than expected figure suggests inflation could still be unfavorable and that an interest rate cut should be delayed.