Friday, July 12, 2024

Here’s the inflation breakdown for June 2024 — in one chart

David Paul Morris/Bloomberg via Getty Images

Inflation fell further in June as lower gasoline prices combined with other easing price pressures to bring relief for consumers’ wallets.

The consumer price index, a key inflation gauge, rose 3% in June from a year ago, down from 3.3% in May, the U.S. Department of Labor reported Thursday.

The CPI gauges how fast prices are changing across the U.S. economy. It measures everything from fruits and vegetables to haircuts, concert tickets and household appliances.

Perhaps the “most encouraging” news for consumers is that inflation for household necessities has cooled dramatically, said Mark Zandi, chief economist at Moody’s Analytics.

“The prices for staples — food at home, gasoline, new-lease rents — they haven’t changed in about a year,” Zandi said. “So people are paying the same for those staples today that they were a year ago.”

The April inflation reading is down significantly from its 9.1% pandemic-era peak in 2022, which was the highest level since 1981.

However, it remains above policymakers’ long-term target, around 2%.

“We continue to expect inflation to grind lower in the months ahead as input cost pressures ease and more tepid consumer demand makes it harder [for businesses] to raise prices,” Sarah House and Aubrey George, economists at Wells Fargo Economics, wrote in a note this week.

However, additional improvements are likely to be “slow-going,” they wrote.

Good sign for Fed interest rate cut in September

The U.S. Federal Reserve uses inflation data to help guide its interest rate policy. It raised interest rates to their highest level in 23 years during the Covid-19 pandemic era, pushing up borrowing costs for consumers and businesses in a bid to tame inflation.

Last month, Fed officials forecast they would start cutting rates by the end of 2024.

“All indications are inflation has moderated, is back close to the Fed’s target and consistent with a rate cut in September,” Zandi said.

Gasoline prices weigh on inflation

Inflation falls 0.1% in June from prior month, helping case for lower rates

‘Core’ CPI at lowest level in three years

Housing is the largest component of core CPI and therefore has an outsized effect on inflation readings. It has accounted for nearly 70% of the total 12-month increase in core CPI.

Shelter inflation has moderated much slower than expected, one of the big reasons inflation has not yet fallen back to target, economists said.

The shelter index lags broader trends in the rental market due to how the government constructs it.

However, economists expect shelter to throttle back further since inflation for market rents has plummeted. For example, the annual inflation rate for new rental contracts sunk to 0.4% in the first quarter of 2024 — lower than its pre-pandemic baseline — from record highs of around 12% just two years earlier, according to Bureau of Labor Statistics data.

There were encouraging signals in the latest CPI report. Monthly shelter inflation dropped to 0.2% after being stuck at 0.4% for four consecutive months. It was the smallest monthly gain since August 2021.

“It should continue to cool off,” said Joe Seydl, senior markets economist at J.P. Morgan Private Bank.

“It just takes time,” he added.

Services inflation is the trouble spot

U.S. economy added 206,000 jobs in June, unemployment rate rises to 4.1%

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