Prices unexpectedly fell in the US last month, lifting hopes that the Federal Reserve is on the verge of cutting interest rates.
As inflation fell 0.1% on a monthly basis in June, having been unchanged in May, the consumer price index’s annual increase was also the smallest in a year.
It was the second straight month of tame CPI readings, and could help to bolster confidence among officials at the Fed that inflation is cooling.
Joe Biden, fighting to retain the White House as many Americans grapple with the heightened cost of living, welcomed “significant progress” in the fight against inflation.
“Prices are falling for cars, appliances, and airfares, and grocery prices have fallen since the beginning of the year,” Biden said in a statement, adding that wages were rising faster than prices “thanks to my economic plan”.
Donald Trump, who is set to formally become the Republican nominee for president next week, is trying to pin blame on Biden for higher prices – claiming on the campaign trail that the current administration “continues to fuel runaway inflation with reckless big government spending”.
In the 12 months through June, the CPI climbed 3.0% and 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 annual increase in consumer prices has slowed significantly from a peak of 9.1% in June 2022, their highest level in a generation.
The reading heightened expectations that US policymakers will soon start to cut rates. “June’s CPI data bring more evidence of broad-based disinflation, giving the Fed the green light to ease [rates] multiple times this year,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Earlier this week Jerome Powell, the Fed chair, warned that holding rates too high for too long would threaten economic growth and jobs. “Elevated inflation is not the only risk we face,” he told Congress, stressing that officials were closely scrutinizing the data.
The CPI report followed news last week that the unemployment rate rose to a two-and-a-half-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.
A cooling labor market and slowing economy have left financial markets and most economists expecting the Fed to start its easing cycle in September.
Reuters contributed reporting
