Confidence is building that inflation is receding
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Sarah Grillo/Axios
The latest Consumer Price Index report, out Thursday morning, revives confidence that America's inflation problem is truly receding.
Why it matters: At the beginning of the year, the reacceleration of inflation stoked fears that progress would stall. Now, that data looks more like an abnormality.
- The soft landing appears intact: The unemployment rate is rising but remains historically low. Wages are rising in real terms. And the slowdown in price increases — and, in some cases, outright drops in the cost of goods — is a huge relief to consumers.
"No matter how you look at it inflation was basically non-existent during the month of June," Jason Furman, who led the Council of Economic Advisers in the Obama administration, posted on X.
- Overall CPI fell 0.1%, the first outright decline — that's right, deflation — since May 2020.
- That came as gasoline prices fell 3.8% in June — an even bigger decline than the prior month. Grocery costs are rising at a moderate pace.
Between the lines: The Fed watches core CPI — which excludes food and gas, the most salient prices for consumers — as a gauge of underlying inflation.
- Core CPI rose a mild 0.1% on a monthly basis. (Unrounded, this increase looks even more benign: 0.06%.)
- In the 12 months through June, the measure rose 3.3% — the smallest annual increase in more than three years.
- Over the past three months, core CPI rose at an annualized rate of 2.1% — a huge pullback from May and the lowest since the onset of the inflation shock.
What they're saying: "The string of exceptionally good core inflation readings signals that the inflation scare in Q1 is over and was an outlier," Kathy Bostjancic, chief economist at Nationwide, wrote in a note.
The drop in shelter costs last month was a key reason that inflation was so soft and will be important to disinflation down the line.
- Fed officials and top economists wondered when this category — representing over a third of total CPI — would help pull inflation down. This was the month it happened.
By the numbers: The rent index rose 0.3% for the month and owners' equivalent rent — which gauges how much it would cost homeowners to rent their own home — rose by the same amount. Both increases are the smallest in three years.
- "Slowing growth here stands to substantially impact the overall inflation figures," NerdWallet senior economist Elizabeth Renter wrote.
- It's only one month of data, Renter wrote, but it "could be the start of an ongoing trend."
The intrigue: The Fed wants more evidence inflation is on a downward path. This report adds to such proof, bolstering the case for officials to cut interest rates in the coming months.
- The CME's FedWatch tool, based on futures prices, shows a rate cut by September as a near certainty. Chances of a second cut by December are rising, too.
What to watch: Fed chair Jerome Powell told lawmakers Wednesday what keeps him up at night: his goal of returning inflation to normal levels without crushing the economy.
- Even before Thursday's data release, Fed governor Lisa Cook said the Fed might have achieved just that.
- "In the U.S., what I have seen so far appears to be consistent with a soft landing: Inflation has fallen significantly from its peak, and the labor market has gradually cooled but remains strong," Cook said in a speech Wednesday.
