What a difference a year makes.
Twelve months after annual inflation for consumer prices stood at 9.1% — the largest year-over-year increase since the 12-month period that ended in November 1981 — a new report shows the rate fell to 3% in June.
The U.S. Bureau of Labor Statistics on Wednesday released its latest Consumer Price Index (CPI) report, showing that annual inflation eased for the 12th straight month last month. The 3% annual rate is the lowest since March 2021. The rate was 5% in March 2023, and fell to 4% in May.
On a monthly basis, the CPI increased 0.2% in June, seasonally adjusted, after rising 0.1% in May, the BLS said.
The index for all items less food and energy — considered a measure of core inflation — also rose 0.2% in June, but that was the smallest one-month increase since August 2021.
All of the numbers beat the expectations of economists. Ahead of the report, economists had projected that annual inflation would fall to 3.1%, down from 4% in May, while core inflation would be 5%, down from 5.3% a month earlier. The monthly increase was expected to be 0.3%.
The largest contributor to the monthly rate was the index for shelter, accounting for over 70% of the increase, the BLS said. The index for motor vehicle insurance also contributed.
Still, there are some positive signs for the Shelter index, according to Charlie Bilello, chief market strategist at Creative Planning, a wealth management firm.
"After 25 consecutive increases, [year-over-year] Shelter CPI has moved down for 3 straight months," Bilello said on Twitter, "from 8.2% in March (highest since 1982) to 7.8% in June. A continued move lower will have a big impact on overall CPI as Shelter represents more than a third of the index."
Other increases included t\The food index, which rose 0.1% in June after increasing 0.2% in May. The index for food at home was unchanged over the month, while the index for food away from home rose 0.4% in June. The energy index rose 0.6% in June as the major energy component indexes were mixed.
On an annual basis, the energy index decreased 16.7% for the 12-month period ending in June, while the food index increased 5.7% year over year.
While the annual CPI rate has dropped to 3%, it remains above the Federal Reserve's target of 2%. Last month, the Federal Open Market Committee (FOMC) paused its string of 10 consecutive increases in the benchmark federal funds rate in the previous 14 months.
FOMC officials, however, have signaled that further rate hikes may be necessary to cool the economy based in part on strong jobs growth. Fed watchers expect the FOMC to boost the federal reserve rate by another 25 basis points during its next meeting, set for July 25-26. That would place the target range for the rate at between 5.25% and 5.5%.
