This Month’s CPI Report Is a Glimmer of Hope in the Fed’s Fight Against Inflation
Key Takeaways
- The consumer price index rose 0.2% in June
- U.S. annual inflation slowed to 3% — more than expected and just within the Feds target range
- These might be signs that inflation is (finally) coming down
The Bureau of Labor Statistics released the latest Consumer Price Index on Wednesday. According to the report, US annual inflation slowed to 3% last month. Compare that to last June, when inflation spiked to 9.1%.
Inflation has now eased for 12 consecutive months, which is a welcome relief for consumers, but also not the whole story.
We’ll get into the details below.
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What’s the gist of the CPI report?
Shoppers rejoice! Price increases have been a consistent gripe for two years. Did prices go down? Well, no, but they went up less — and we’ll take it. On a monthly basis, prices increased by 0.2% compared to a 0.4% increase seen in May.
Gas prices were up 1% from May, but that’s still 27% lower than this time last year.
Unfortunately, your favorite restaurant is still costing you more. The report says food away from home inflation is up 7.7% year over year.
The main driver of inflation in June — accounting for 70% of the increase — was shelter, which increased 0.4 percent, although this is a lagging indicator of rents, which have been declining.
Overall, the June annual inflation rate is down from 4% in May, which is just below economists’ expectations of a 3.1% increase.
How does this impact the stock market?
The Fed’s strategy to stifle inflation seems to be working. That means that we might get a break from rising interest rates sooner than later, although experts still think a quarter percentage point rate hike at the end of this month is almost certain.
“The [Federal Reserve’s] fight against inflation is working,” said Sung Won Sohn, professor of finance and economics at Loyola Marymount University and chief economist at SS Economics. “But that 4.8% core rate is still much too high, and the Fed has more work to do.”
Stocks reacted positively to the June U.S. Consumer Price Index report, but it wasn’t anything hugely noteworthy: The S&P 500 rose 0.7%, the Nasdaq Composite index added 1.2%, and the Dow Jones Industrial Average was up 0.3%.
The bottom line
The high-level takeaways from June’s CPI report are encouraging, but they’re just one little snapshot of a bigger economic picture. We’ll have to see what the Fed does next to better understand where we’re headed.
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