June’s Inflation Number Receives a Warm Reception

Inflation in the United States has dropped to its lowest level since March 2021, standing at 3% in June compared to the previous year. This decline can be attributed to the Federal Reserve’s interest rate hikes, which have effectively slowed price increases across the economy. While the rate is still higher than the Fed’s target rate of 2%, it is a significant improvement from the 4% annual rate in May. Additionally, overall prices rose by 0.2% from May to June. The news of this decrease in inflation sparked a 200-plus point jump in the Dow, surpassing economists’ expectations of 3.1% and 0.3% increases, respectively. (Source: CNBC)

Gas prices have fallen to an average of $3.50 per gallon nationwide, a significant decrease from the peak of $5 last year. While grocery prices continue to rise, there is evidence of slower growth in certain categories. For example, egg prices have dropped to a national average of $2.67 per dozen, down from a peak of $4.82 at the beginning of the year. However, they still remain higher than the average pre-pandemic price of approximately $1.60. Milk and ground beef prices have also eased from their peak levels. On the other hand, the cost of services such as restaurant meals, car insurance, child care, and dental services continue to rise rapidly. Auto insurance, in particular, now costs an average of 17% more than it did a year ago.

Despite the decline in inflation, some underlying pressures persist, causing concern for the Federal Reserve. The central bank is likely to increase its key interest rate when it convenes in two weeks, continuing its pattern of raising rates. Since March 2022, the Fed has raised its benchmark rate by a significant 5 percentage points, the most substantial increase in four decades. If inflation continues to slow and the economy shows signs of cooling, the upcoming rate hike in July could potentially be the Fed’s final one. (Read more inflation stories.)