Inflation, which is an important economic indicator in measuring the rate at which prices are changing across the economy, has decreased in June 2024. The Consumer Price Index (CPI) rose by 3% in June compared to a year ago, showing a decline from May’s rate of 3.3%. This decrease in inflation has provided some relief to consumers’ wallets as the prices of essential household items have remained stable over the past year.
According to Mark Zandi, the Chief Economist at Moody’s Analytics, prices for staples such as food at home, gasoline, and new-lease rents have not changed significantly in the past year. This stability in prices for essential items has benefited consumers who are paying the same amount for these products as they did a year ago. The decline in inflation is a positive development for consumers’ purchasing power and overall economic well-being.
Economists at Wells Fargo Economics, Sarah House, and Aubrey George, predict that inflation is likely to continue grinding lower in the coming months as input costs ease and consumer demand remains tepid. Though inflation remains above the policymakers’ long-term target of around 2%, the trend is expected to be gradual. The Federal Reserve’s interest-rate policy is influenced by inflation data, and with the current moderation in inflation, the possibility of a rate cut in September is on the horizon.
One of the factors contributing to the decline in inflation in June was the decrease in gasoline prices. Gasoline prices fell by 3.8% relative to May, reflecting weak demand, increasing supply, and falling oil costs. The decline in gas prices has in turn lowered the overall inflation rate, providing some relief to consumers who rely on automobiles for transportation.
Prices at grocery stores have also experienced a broad pullback. Prices for “food at home” have only risen by 1.1% since June 2023, indicating a slowdown in the rate of increase. Economists attribute this slowdown to growing promotional activity among retailers and price cuts by major companies targeting competitors’ pricing. Consumers now have more breathing room in their grocery budgets due to these price adjustments.
Economists generally recommend looking at core inflation readings, which exclude food and energy prices, to get a better understanding of short-term trends. The monthly core CPI reading in June was 0.1%, the smallest increase in about three years. Despite this, “core” CPI has risen by 3.3% since June 2023, indicating a gradual increase in inflationary pressures.
The housing sector plays a significant role in inflation readings, with shelter inflation accounting for nearly 70% of the total 12-month increase in core CPI. The slow moderation of shelter inflation has prevented overall inflation from reaching the policymakers’ target of around 2%. However, economists expect shelter inflation to decrease further as rents stabilize and rental market trends fall in line with broader economic patterns.
While goods inflation has normalized, core services like motor vehicle insurance and medical care have seen notable price increases since June 2023. Factors such as higher labor costs in healthcare and rising demand for skilled workers have contributed to these price hikes. Economists attribute the slow translation of higher labor costs to CPI readings to long contracting processes in the healthcare sector.
The decline in inflation in June 2024 has provided some respite for consumers who have been grappling with rising prices for essential goods and services. The moderation of inflationary pressures is expected to continue in the coming months, but challenges in core services and shelter inflation remain. Consumers are likely to benefit from stable prices for household necessities and increased promotional activities among retailers in the near future.