United States: Inflation Continues to Slow

The US Consumer Price Index hasn’t gone up since April. Both May’s lack of growth and June’s slight pullback spell good news for US consumers, as well as for Federal Reserve (Fed) officials. They’re in stark contrast to the results from the beginning of the year, when month-over-month change to the all items index came in higher than expected, with gains of 0.3% (January and April) and 0.4% (February and March). June’s 0.1% drop in the CPI represents the first significant monthly decline since May 2020. The bulk of this drop comes from energy prices, which slid 2.0% in June—including a 3.8% plunge in gasoline prices. But this contraction came to a halt in July, after two straight months of decline, and energy prices might even give the CPI a lift this month. It’s also worth noting that food prices went up 0.2% in June, its biggest increase since January.

All the same, the index for all items less food and energy edged up just 0.1%, which is rather encouraging. This is its weakest monthly growth since January 2021. And the price of goods (excluding food and energy) fell again, dipping 0.1%. The biggest surprise, however, comes from weak price growth in services less energy. At 0.1%, this is its lowest monthly increase since August 2021. Shelter posted astonishingly meagre growth, coming in at just 0.2%. This component hasn’t posted growth below 0.4% since November 2023. Aside from shelter and energy services, service prices (one of the measurements watched closely by the Fed) haven’t risen since April. Medical service price growth slowed, and airline fares dropped for the third month in a row, this time by 5.0%.

June’s numbers clearly show that the inflation is now trending in the right direction, while the opposite seemed true at the beginning of the year. Fears that inflation will heat up again are therefore gradually easing. Does that mean that the battle has been won? Not yet. Fed authorities will probably want to see more results like those we’re seeing today. It’s also important to remember that our hopes have been dashed before—several times over the last few years—and inflation has temporarily cooled in previous summers, even when the data coming out of the US has been seasonally adjusted. So we’ll need to remain cautious.

Inflation continues to slow in the United States. After disappointing data in the first few months of 2024, price movements have been much more encouraging in the past two months, particularly in the services sector. But we shouldn’t expect the Fed to announce a rate cut in the immediate future. They’ll want to be sure that inflation continues to cool before making their move. We’re still calling for two rate cuts in 2024, probably close to the end of the year.