Inflation eased in June, up 3% from year ago

The closely watched report on U.S. inflation indicated consumer prices cooling in June, a welcome sign for economists and consumers. The Consumer Price Index (CPI) declined 0.1% from the prior month in June, but was up 3% annually.

Both measures beat expectations indicating the economy is cooling, according to Thursday’s (July 11) report from the U.S. Bureau of Labor Statistics (BLS). The core inflation rate that strips out more volatile food and fuel costs increased 0.1% from May and 3.3% year over year.

“The inflation print today appears to prove the hot data to start the year was mostly an outlier. It appears we’ve resumed the disinflationary trend lower – great news for the Fed and possibly a rate cut before September,” noted John Tyner, portfolio manager at Aptus Capital Advisors.

Lower grocery and gas prices and falling prices on new and used cars led to the first month-on-month decline since May 2020, according to the BLS. While 3% is still above the Fed’s 2% target rate, it indicated consumer prices are increasing at their slowest pace since June 2023. The last time the CPI reading was at 3% was early 2021.

Energy costs fell 2% in June on the heels of the same decline in May. Gasoline prices fell 3.8% in June. Year-over-year gasoline prices dropped 2.5%. Electricity prices were down 0.7 in June from May and 1% lower than a year ago. Natural gas prices bucked the trend rising 2.4% in June from the prior month. Natural gas prices were up 3.7% from a year ago.

While food prices overall are moderating from several months ago, the June reading indicated four of the six food group categories increased from May. Food prices overall rose 0.2% in June, slightly higher than the 0.1% reported in May. Compared to a year ago, food prices are up 2.2% in the June report.

Grocery prices on food consumed at home increased 0.1% in June, compared to a flat rate in May. Over the past year, grocery prices are up 1.1%. Prices of meats, poultry, fish and eggs rose 2.6%, nonalcoholic beverages prices rose 1.5% and cereal and bakery product prices were 0.5% higher year over year. In comparison, fruit and vegetable prices declined 0.5% and dairy and related product prices declined 0.1.

Restaurant food consumed away from home increased 0.4% in June and 4.1% year over year behind higher menu prices from all foodservice segments. The cost of meals rose 0.6% for full-service and 0.2% for limited-service meals compared to May. Limited-service meal prices increased 4.3% year over year and full-service meal prices were up 3.9% from a year ago.

Shelter costs grew by 0.2% from the prior month and 5.2% from a year ago. The monthly increase was the lowest reading this calendar year, and down from 0.6% in January. Shelter costs comprise about one-third of the market basket of goods and services the BLS uses to track inflation.

Greg McBride, chief financial officer at Bankrate, said shelter costs have been the longstanding and persistent trouble spot in the inflation readings but the tide could be turning with the June report.

BLS said other services that continued to have higher inflation rates in June were motor vehicle insurance rates up 19.5% year over year, medical care costs up 3.3%, personal care services prices 3.2% higher and recreation costs up 1.3% from a year ago. Some items and service prices are down year over year, used car prices are down 10.1% and new car prices are down 0.9% from June 2023. Airfare rates are also 5.1% lower than a year ago