- US consumer prices fell 0.4% in June, first decline in six years, driven by gasoline prices
- Core inflation excluding food and energy remained flat month-over-month in June
- Annual headline inflation rose 3.5%, while core inflation increased 2.6% year-over-year
US consumer prices declined in June for the first time in six years and a key gauge of underlying inflation was little changed, taking some pressure off the Federal Reserve to raise interest rates.
The consumer price index fell 0.4% from May, dragged down by the biggest decline in gasoline prices since 2022, according to Bureau of Labor Statistics data out Tuesday. Excluding food and energy, the index was flat from the prior month.
The report suggests a slide in prices at the pump in June offered consumers some relief as the worst of the Iran war energy shock started to fade. Fed officials will likely welcome the data ahead of the US central bank's upcoming meeting at the end of the month, though a new upturn in oil prices amid renewed hostilities between the US and Iran risks prolonging the inflationary fallout from the conflict.
And while the monthly inflation figures were tame, annual gauges continued to point to elevated inflation: The headline index was up 3.5% from a year earlier and the core measure was 2.6% higher.
"This weakness will likely prove temporary and should fade as soon as next month's report," said Omair Sharif, president of Inflation Insights LLC. "This is welcome news for the Fed, but it is hardly mission accomplished."
US stock index futures rose and Treasury yields fell as investors scaled back bets on a Fed rate increase in July. Fed Chairman Kevin Warsh said in prepared remarks for testimony before Congress Tuesday that the central bank has "no tolerance" for persistently elevated inflation.
The figures showed the core gauge was restrained by monthly declines in goods prices, including those for apparel and used cars.
A services gauge that Fed officials watch closely, which strips out housing and energy costs, fell by 0.2%, matching the biggest decline since the onset of the pandemic. It was dragged down by motor vehicle insurance premiums, which also fell by the most since 2020.
What Bloomberg Economics Says...
"Core-goods inflation was negative and supercore (services ex-shelter) declined. That leaves Warsh with the best of both worlds: He can continue to sound hawkish without having to raise rates. We think the soft inflation data take a July hike off the table and support our view that the FOMC will stay on hold for the rest of the year."
- Andrew Sacher and Troy Durie
Gasoline prices fell nearly 10%, rents rose modestly and grocery prices advanced for a third month on increases in beef, eggs and dairy. Hotel rates, meanwhile, declined by the most in more than a year after four straight months of gains. Restaurant prices rose only modestly.
Computer software and accessories prices jumped 2.3% on the month and a record 17.4% from a year earlier. Minutes of the Fed's June 16-17 meeting released last week reflected growing concern among policymakers over inflation, including a scenario in which inflation remains elevated due to strong AI-driven demand, the Middle East conflict and President Donald Trump's tariffs.
A separate report Tuesday combined the inflation figures with recent wage data. Thanks to the drop in gasoline prices, Americans saw real average hourly earnings rise 0.1% from a year earlier after declines in the prior two months.
The combination of higher prices and weaker pay increases has been putting more stress on household budgets ahead of November's midterm elections, at a time when the University of Michigan's gauge of consumer sentiment has only just started to recover from record lows.
The Fed's preferred measure of inflation, the personal consumption expenditures price index, doesn't put as much weight on rents as the CPI. Figures on producer prices due Wednesday will offer insights on additional categories that feed directly into the PCE index, which will be released later this month.
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