The closely watched U.S. inflation report showed consumer price growth slowed further in June, according to the latest data released by the Bureau of Labor Statistics on Thursday morning.
The Consumer Price Index (CPI) fell 0.1% month-on-month in June and rose just 3% year-on-year, slowing from May’s flat month-on-month increase and 3.3% annual inflation. Both measures beat economists’ expectations of a 0.1% month-on-month increase and a 3.1% annual increase.
Notably, this is the first time the monthly headline CPI has been negative since May 2020. It also marks the lowest annual price growth rate since March 2021.
On a “core” basis, which excludes volatile costs like food and gasoline, prices rose 0.1% in June from the previous month and 3.3% from a year earlier, slower than the May data. Economists had expected core prices to rise 0.2% from the previous month and 3.4% from a year earlier.
This was the smallest month-on-month increase in core prices since August 2021.
Markets opened higher following the report but then fell sharply as investors pulled out of tech stocks. The 10-year Treasury yield (^TNX) fell about 9 basis points to trade around 4.2%.
Inflation has remained stubbornly above the Federal Reserve’s 2% annual target, but recent economic data has stoked the view that the central bank should cut interest rates sooner rather than later.
Coming on the heels of Thursday’s upbeat inflation report, markets are now pricing in about an 89% probability that the Federal Reserve will begin cutting interest rates at its September meeting, up from 75% the previous day, according to CME Group data.
The data is the latest to support the Fed’s interest rate cut.
Read more: How the Federal Reserve’s interest rate decision will affect your bank accounts, CDs, loans and credit cards
The U.S. Bureau of Labor Statistics said Friday that the number of nonfarm payrolls in the labor market rose by 206,000 last month, beating economists’ expectations of more than 190,000. But the unemployment rate unexpectedly rose to 4.1%, from 4% the previous month, the highest level in nearly three years.
Notably, the Fed’s preferred inflation measure, the so-called core PCE price index, showed inflation easing in May. The year-over-year change in core PCE in May was in line with expectations, marking the slowest annual rate of increase in more than three years.
“While the decline in consumer prices from May to June is unlikely to persist, the case for the Fed to begin cutting rates in September strengthens, particularly given the softening labor market,” Ryan Sweet, chief U.S. economist at Oxford Economics, wrote.
The story continues
Still, the economist cautioned against “overinterpreting the decline in June’s CPI and does not believe it represents a new trend.”
Seema Shah, chief global strategist at Principal Asset Management, acknowledged that the latest figures “firmly point the way towards a Fed rate cut in September,” but said “a July rate cut is still off the table.”
“Not only does it raise the question, ‘What does the Fed know about the economy that we don’t?’ but the Fed still needs to gather more evidence that price pressures are weakening before it can be absolutely certain about the trajectory of inflation.”
Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board of Governors in Washington, June 12, 2024. (AP Photo/Susan Walsh, File) (The Associated Press)
Home prices fall, energy index drops
The notable inflation indicator was the housing index, which rose 5.2% from a year earlier, adjusting for growth, slowing from May. The index rose 0.2% from the previous month.
Economists say the rise in core inflation has been driven mainly by rising house prices, but June’s data showed signs of a cooling.
The Rent Index and Owner’s Equivalent Rent (OER) Index each increased 0.3% month-on-month, their smallest increases since August 2021. Owner’s Equivalent Rent is a hypothetical rent that a homeowner would pay for the same property.
Meanwhile, overnight stays outside the home fell 2% in June after declining 0.1% in May.
Energy prices also fell again in June due to a large drop in gasoline prices. The index fell another 2% from the previous month. On an annual basis, the index was up 1%.
Gasoline prices fell 3.8% from May to June after dropping 3.6% in the previous month.
The food index rose 2.2% in June compared to last year, with food prices proving to be an inflation-sensitive area, rising 0.2% from May to June. The food at home index rose 0.1% month-on-month, with eating out rising a further 0.4%.
Other indexes that rose in June included auto insurance, home furniture and equipment, health care, and personal care.
According to the BLS, indexes for airfares, used cars and trucks, and communications were among those that fell during the month.
Read more about inflation and the market downturn below.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her at Yahoo Finance. translatorvisit me on LinkedIn or email me at alexandra.canal@yahoofinance.com.
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