US inflation dropped to 3% in June, lower than expected, in the latest sign that the Federal Reserve’s interest rate rises are influencing price pressures. The annual increase in the consumer price index slowed from 4% in May to 3%, the slowest rate of inflation since March 2021. Prices increased 0.2% monthly in June, up from 0.1% the previous month but less than economists had forecast. The annual figure was further helped by so-called base effects, as extremely large rises from June 2022 drop out of the calculations.
There was a more modest dip in Core CPI, which slowed to an annual rate of 4.8% in June, from 5.3%. Core prices, which strip out volatile food and energy costs, rose 0.2% month on month, compared with 0.4% in May. The two-year Treasury yield, which moves with interest rate expectations, fell to its lowest level in two weeks after the CPI data was released. Futures markets were still pricing in a high likelihood of a rate increase in July but scaled back bets on higher rates later in the year.
The headline rate of inflation has been moving closer to the Fed’s 2% target after peaking at more than 9% in June 2022. However, core inflation has proved stickier, raising expectations that the US central bank will need to lift interest rates further. The Fed has raised its benchmark interest rate to a range of 5 to 5.25% from close to zero at the start of 2022. Officials kept rates steady at their most recent policy meeting in June, to take stock of the effect of previous rises, but have made clear that they expect further increases before the end of the year.
Source: Financial Times