Monthly US Consumer Prices Post First Drop in Four Years as Inflation Subsides

  • U.S. consumer prices fell for the first time in four years in June amid cheaper gasoline and moderating rents, firmly putting disinflation back on track and drawing the Federal Reserve another step closer to cutting interest rates in September. The second straight month of benign consumer price readings reported by the Labour Department on Thursday should help to bolster confidence among officials.
  • The report also showed a measure of underlying inflation, posting the smallest increase since August 2021 on a monthly basis. The consumer price index dipped 0.1% last month, the first drop since May 2020, after being unchanged in May, the Labor Department's Bureau of Labor Statistics said. The CPI was weighed down by a 3.8% decline in gasoline prices, which followed a 3.6% decrease in May. Shelter costs, which include rents, increased a moderate 0.2% after advancing 0.4% in May.
  • Food prices rose 0.2% after edging up 0.1% in May. Grocery store prices ticked up 0.1%, with increases in dairy products, meat, fish, and eggs offset by declines in the costs of fruits and vegetables as well as cereals. In the 12 months through June, the CPI climbed 3.0%, the smallest gain since June 2023. That followed a 3.3% advance in May. Economists polled by Reuters had forecast the CPI ticking up 0.1% and gaining 3.1% year-on-year.
  • The broad moderation in inflation aligns with reports from retailers about consumers pushing back against higher prices. Retailers, including Target and Walmart, have cut prices on a range of goods. It was also a rare dose of good news for President Joe Biden in recent days, whose popularity has been eroded by the high cost of living.
  • The annual increase in consumer prices has slowed from a peak of 9.1% in June 2022. The CPI report followed news last week that the unemployment rate rose to a 2-1/2-year high of 4.1% in June from 4.0% in May. Economic growth has also slowed in response to the central bank's hefty rate hikes in 2022 and 2023, with second-quarter gross domestic product forecast near the 1.8% annualized rate that policymakers view as the non-inflationary growth pace.

(Source: Reuters)