US inflation hits its lowest point since early 2021

Prices ease for gas, groceries

BY CHRISTOPHER RUGABER The Associated Press
 
 WA S H I N GT O N — Squeezed by painfully high prices for two years, Americans have gained some much-needed relief with inflation reaching its lowest point since early 2021 — 3% in June compared with a year earlier — thanks in part to easing prices for gasoline, airline fares, used cars and groceries.
 
 The inflation figure the government reported Wednesday was down sharply from a 4% annual rate in May, though still above the Federal Reserve’s 2% target. From May to June, overall prices rose 0.2%, up from just 0.1% in the previous month but still comparatively mild.
 
 Even with Wednesday’s better-than-expected inflation data, the Fed is considered all but sure to raise its benchmark rate when it meets in two weeks. But with price increases slowing — or even falling outright — across a range of goods and services, many economists say they think the central bank could hold off on what had been expected to be another rate hike in September, should inflation continue to cool.
 
 “It takes the second hike off the table, if that trend continues,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “They’re probably on hold for the rest of the year.”
 
 On Wall Street, investors cheered the encouraging news, sending stock and bond prices higher. Investors have been eagerly anticipating the eventual end of the central bank’s rate increases.
 
 The Fed has raised its benchmark rate by a substantial 5 percentage points since March 2022, the steepest pace of increases in four decades. Its expected hike this month will follow the central bank’s decision to pause its rate increases last month after 10 consecutive hikes.
 
 Wednesday’s inflation data may lift hopes that the Fed will achieve a difficult “soft landing,” in which price increases fall back to 2% without causing a spike in unemployment or a deep recession. Last week, the government reported solid hiring in June, though it slowed compared with earlier this year. The unemployment rate ticked lower, from 3.7% to 3.6%, near a half-century low.
 
 When the Fed began raising its key rate a year ago, many economists expected that unemployment would have to rise significantly to curb inflation. Though inflation isn’t yet fully tamed, some economists say they think it can fall to a level near the Fed’s 2% target earlier than they had expected.
 
 Excluding the volatile food and energy prices, so-called core inflation was lower last month than economists had expected, rising just 0.2% from May to June, the smallest monthly increase in nearly two years. Compared with a year ago, core inflation does remain relatively high, at 4.8%, but down from a 5.3% annual rate in May.
 
 In just the past two months, overall inflation, measured year over year, has slowed from nearly 5% in April to just 3% now. Much of that progress reflects the fading of spikes in food and energy prices that followed Russia’s invasion of Ukraine last spring. Inflation is now significantly below its peak of 9.1% in June 2022.
 
 Gas prices have fallen to about $3.54 a gallon on average, nationally, down from a $5 peak last year. Grocery prices have leveled off in the past three months and were unchanged from May to June. Milk prices, having dropped for a third straight month, are down 1.9% from last year.
 
 Eggs, which had skyrocketed last year after an outbreak of avian flu decimated chicken flocks, have dropped to $2.22 a dozen — down more than 7% just in the past month. Egg prices had peaked at $4.82 in January, according to government data. Still, they remain above the average pre-pandemic price of about $1.60 a dozen.
 
 Economists say inflation isn’t likely to keep falling at such a rapid pace. On a 12-month basis, inflation could even tick up in the coming months now that big drops in gas prices — they’re down 27% in the past year — have been achieved..
 
 In particular, airfares plunged 8.1% just from May to June, hotel costs 2% and car rental prices 1.4% — sharp drops that aren’t likely to be replicated.
 
 And the cost of some services are still rising and likely to stay high this year, potentially keeping core prices elevated.
 
 Auto insurance costs, for instance, have soared, and are up 16.9% from a year ago. Americans are driving more than during the pandemic and causing more accidents. Insurance is also costlier because vehicle prices are much higher than before the pandemic, and cars are therefore more valuable.
A food shopper pushes a cart of groceries at a supermarket in Bellflower, Calif., on Feb. 13, 2023.
 
ALLISON DINNER/ THE ASSOCIATED PRESS