Inflation cooled down to its lowest levels in more than two years in June, according to the latest Consumer Price Index (CPI) report released by the Bureau of Labor and Statistics. Prices for goods and services rose 3.0% from the year prior and climbed 0.2% from May, less than economists expected. The so-called core CPI, which excludes the more volatile prices of food and energy, rose 4.8% in June from a year earlier, the slowest pace since October 2021, and down from 5.3% in May.
Shelter costs–the biggest services component, which make up about a third of the overall CPI–climbed 0.4%, including the smallest increase in a key measure of rent since the end of 2021. Grocery prices remained unchanged, as did medical care services. Meanwhile, merchandise prices, excluding food and energy, fell for the first time this year. Categories ranging from airfares and alcohol to rental cars and health insurance all saw outright declines over the month.
In addition to the good news about inflation, the American labor market is proving to be extremely resilient, with employers continuing to add jobs at a robust pace and inflation-adjusted average hourly earnings rising for a fourth month in June. They were up 1.2% from a year ago, the most since March 2021.
What’s Next for the Fed?
The Federal Reserve Bank is scheduled to meet on July 25-26 to decide whether to increase interest rates further. The Fed opted for a pause at their previous meeting in June, breaking a ten-consecutive hiking streak. However, despite the good news, many economists are betting on another 25 bps increase later this month. “Inflation is too high. Our target’s 2%,” Richmond Fed President Thomas Barkin said at an event Wednesday after the CPI data was released. “If you back off too soon, inflation comes back strong, which then requires the Fed to do even more.”
Some experts are optimistic and think that an upcoming rate increase will be the last one for a while. “My guess is that they’re so locked in on another increase in July that they’ll go ahead with that,” said David Wilcox, senior economist at Bloomberg Economics and the Peterson Institute for International Economics. “The main effect it will have is to really fortify the argument around July’s hike being the last of this campaign.”
We’ll continue to keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
