The key U.S. gauge of consumer prices showed the lowest level of inflation since early 2021, Matt writes.

Why it matters: The slowdown raises the prospect that the interest rate surge — which hammered stocks last year — may really be nearly over.

• If so, the rally that started last fall may indeed be a new bull market.

By the numbers: Overall inflation in June was just 3% compared with the same month last year.

• Prices were still rising, but at the slowest pace since March 2021 — and June's price gains were smaller than analysts had expected.

State of play: Stocks rose broadly — if unspectacularly — on the report, posting their best day of the month.

• The S&P 500 increased 0.7%.
• The interest-rate-sensitive Nasdaq composite index rose 1.2%.
• The Russell 2000 index of small-capitalization stocks — sensitive to the short-term outlook on U.S. domestic growth — climbed 1.1%.

The bottom line: The day's good inflation news left the stock market sitting at its highs for the year — the S&P is up 16.5% in 2023.

• We're now less than 7% from a new all-time high, the traditional mark that stock mavens say confirms the birth of a new bull market.

Falling inflation means the Fed is almost finished raising rates.

• "Today’s report is consistent with our view that Fed tightening is in its final innings," Goldman Sachs analysts wrote.

• "Most indicators of pipeline pressures — PPI, import prices, supplier deliveries — suggest goods price inflation should remain tame in coming months," wrote JPMorgan economists.
• "Today’s CPI report, while really only the first of what we anticipate will become a trend toward closer to target levels of inflation, is clearly a move in the right direction," wrote bond market analysts at BlackRock.

Inflation might be slowing, but prices are still high — and rising.

The big picture: There's still inflation. Prices are just rising at a more moderate pace compared to the last couple of years.

Context: Much of the underlying collapse in inflation over the last year reflects the plunge in energy prices.

• Excluding energy and food prices, inflation slowed in June to 4.8% — down from 5.3% in May — but that's still a lot higher than the 3% annual pace for the overall index.

Flashback: Remember, last June was when average U.S. gasoline prices hit the never-before-seen level of $5 per gallon.

• Nationwide, they're about 30% lower now, at $3.50 a gallon.

The bottom line: Americans are still under quite a bit of price pressure for key costs of living.

• Most notably, housing affordability is hitting some of the lowest levels on record, as a lack of supply keeps home prices out of reach for many.
• Inflation in shelter costs inched lower in June but still rose at a painful 7.8% annual rate — as the chart above shows.

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