United States inflation cools again

Inflation in the United States cooled in June for a third straight month, a sign that the worst price spike in four decades is steadily fading and may soon usher in interest rate cuts by the Federal Reserve.

In a better-than-expected report, consumer prices declined 0.1 per cent from May to June after having remained flat the previous month, the US Labor Department said Thursday. It was the first monthly decline in overall inflation since May 2020, when the economy was paralysed by the pandemic.

And measured from one year earlier, prices were up 3 per cent in June, cooler than the 3.3 per cent annual rate in May.

The latest inflation readings will likely help convince the Fed’s policymakers that inflation is returning to their 2.0 per cent target. A brief pickup in inflation early this year had caused the officials to scale back their expectations for interest rate cuts. The policymakers said they would need to see several months of mild price increases to feel confident enough to cut their key rate from its 23-year high.

The June figures will qualify as another instalment of the more good inflation data the central bank has been seeking. Should inflation remain low through the summer, most economists expect the Fed to begin cutting its benchmark rate in September.

“This confirms that there is very little chance of inflation re-accelerating and that it’s time for some rate cuts from the Fed,” said Luke Tilley, chief economist at Wilmington Trust, a wealth management firm.

Tilley noted that measures of rent and homeownership costs cooled significantly last month, a long-awaited development.

Also on Thursday, Mary Daly, a key Fed official, suggested that the central bank should cut rates soon. Daly, president of the Fed’s San Francisco branch, said she believed that slowing inflation and a cooling job market justify a reduction in interest rates. She did not address the specific timing of any rate cut.

“I see it as likely that some policy adjustments will be warranted,” Daly said on a conference call with reporters.

Even as inflation slows, the costs of food, rent, health care and other necessities remain much higher than they were before the pandemic.

In June, gas prices plunged for a second straight month, tumbling 3.8 per cent on average nationwide from May. Grocery prices ticked up by a slight 0.1 per cent last month, the first increase in five months, and are just 1.1 per cent higher than a year ago. Food prices are still up, on average, 21 per cent from March 2021, when inflation started to surge, although Americans’ average wages have also risen sharply since then.

Excluding volatile food and energy costs, so-called core prices, which are thought to provide telling signals of where inflation is likely headed, climbed just 0.1 per cent from May to June, below the 0.2 per cent increase in the previous month. Measured from 12 months earlier, core prices rose 3.3 per cent in June, down from 3.4 per cent in May.

Inflation is now far below its peak of 9.1 per cent in mid-2022.

AP