Key Takeaways

– The Consumer Price Index (CPI) saw a decline of 0.1% from May to June, reducing the annual rate to 3%, its lowest in over three years.

– Excluding food and energy, the core CPI rose by just 0.1% month-over-month and 3.3% year-over-year.

– A notable drop in gasoline prices by 3.8% helped offset minor increases in food and shelter costs.

June 2024 Inflation Report Highlights

Inflation’s Dip Below Expectations

The inflation rate for June witnessed a notable decrease for the first time in over four years, as the broader measure of costs for goods and services, known as the Consumer Price Index (CPI), fell by 0.1% from May. This reduction sets the annual inflation rate at 3%, a level unseen in more than three years, according to the Labor Department source. This decline from May’s 3.3% annual rate, which had stagnated month-over-month, underscores a positive shift in economic indicators.

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Core CPI Analysis and Sectoral Influences

Excluding the more volatile food and energy segments, the core CPI still saw a modest increase of 0.1% on a monthly basis and 3.3% year-over-year. These figures came in lower than the anticipated 0.2% and 3.4%, respectively, marking the smallest annual increase since April 2021. The drop in gasoline prices by 3.8% significantly curbed overall inflation for June, counterbalancing 0.2% increases in both food prices and housing costs. Given that housing expenses constitute about one-third of the CPI’s total weight, slowing growth in shelter costs is a welcome development.

Market Reactions and Fed Policy Implications

Following the inflation report’s release, stock market futures experienced a rise, while Treasury yields dropped. Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, remarked that the Federal Reserve is now “one step closer to a September rate cut.” This perspective is shared widely, provided that inflationary trends continue their current trajectory.

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Economic Indicators and Employment Data

The modest inflation report also buoyed real average hourly earnings, which saw a monthly increase of 0.4%. Over the past year, earnings have grown by just 0.8%. Meanwhile, in labor market news, initial jobless claims declined by 17,000 to 222,000 for the week, the lowest since June 1. Continuing claims also saw a slight decrease to 1.85 million.

Future Projections

The June CPI data lends further credence to the possibility of multiple rate cuts by the Fed within this year. Although policymakers had earlier signaled a potential single rate cut, market projections are now more bullish. They foresee an initial cut as early as September, with subsequent reductions by year-end. Traders also estimate a 40% probability of a third rate cut by December.

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