Consumer prices rose 3 percent annually in June and 0.2 percent last month alone, according to inflation data released Wednesday by the Labor Department.
The consumer price index (CPI) posted its smallest annual increase since March 2021, as inflation fell from a 4 percent annual rate in May. Without food and energy, prices rose 4.8 percent on the year and 0.2 percent in June, the smallest one-month increase since August 2021.
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Inflation came in slightly lower than economists had expected, after declines in used auto prices, airline fares and household furnishings helped bring down overall price growth.
Housing costs were the biggest driver of inflation, according to the Labor Department, fueling more than 70 percent of price growth in June.
Inflation falling steadily
The June slowdown in price growth is another sign that the U.S. is finally past the burst of inflation set off by the recovery from the COVID-19 pandemic and years of supply chain issues.
After peaking at an annual rate of 9.1 percent in June 2022, inflation has fallen rapidly back toward pre-pandemic levels.
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Energy prices are down 16.7 percent from last year, when Russia’s invasion of Ukraine and the sanctions imposed in response caused oil and natural gas prices to spike. Food prices are up 5.7 percent from a year ago, but grocery store prices have either fallen or stayed flat in each month since March.
“Prices for everything from eggs to used cars dropped in June, causing a big deflation in inflation. By one measure, inflation is just one-third of what it was a year ago, said Robert Frick, corporate economist with Navy Federal Credit Union, in a Wednesday analysis.
“However, this is not yet a turning point,” Frick continued. “Core inflation will prove tougher to beat.”
Where prices are still rising quickly
The overall decline in inflation should be somewhat reassuring to the Federal Reserve as the central bank battles price growth; the Fed is trying to bring inflation back down to an annual rate of 2 percent with a string of rapid interest rate hikes, which tend to slow the economy.
The overall inflation rate is within striking distance of the Fed’s goal. But “core” inflation — which strips out food and energy prices — is at an annual rate of 4.8 percent, still well above the bank’s target.
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The Fed focuses on core inflation, because food and energy prices are driven by factors far outside the bank’s control. The steady climb in housing, transportation, vehicle insurance and recreation prices will likely keep the Fed on track to raise rates later this month, after briefly pausing in June.
“One month of encouraging CPI data isn’t enough for the Fed to make a dovish pivot, particularly as it seeks to maintain credibility with financial markets,” said Morning Consult chief economist John Leer.
Updated at 9:35 a.m. ET.