The inflation rate in the US dipped in June for the first time in over four years, providing leeway for the Federal Reserve to potentially lower interest rates later this year. This is positive news as inflation reached a peak of over 9% in June 2022. The Consumer Price Index (CPI), a key measure of inflation, fell 0.1% in June compared to May. This brings the annual inflation rate down to 3%, which is around the lowest level in over three years.
Excluding volatile food and energy prices, the core CPI also showed a positive sign. It increased by 0.1% monthly and 3.3% annually, which is lower than expected. This suggests that inflation is on a downward trend. A major contributor to the lower inflation rate was the 3.8% decrease in gasoline prices. However, housing costs, which make up a significant portion of the CPI, continue to be a concern as they only showed a modest increase in June.
The Federal Reserve is aiming for an inflation rate of 2% annually. The June CPI report strengthens the argument that inflation is headed in the right direction. This could lead to the Fed lowering interest rates. Following the report, traders are now pricing in an initial rate cut in September, potentially followed by additional cuts by the end of the year. The lower inflation rate and falling jobless claims are positive signs for the US economy.
