Inflation for June 2024 is presented in a single chart.

• In June 2024, the consumer price index increased by 3% compared to the same month the previous year, although this was lower than the 3.3% rise observed in May, as reported by the Bureau of Labor Statistics.
• The inflation rate is approaching the Federal Reserve's target, having decreased significantly from its 9.1% pandemic-era high in 2022.
• Households have seen relief for staples like groceries and gasoline.

In June, inflation decreased due to the combined effect of lower gasoline prices and other easing price pressures, providing relief for consumers' wallets.

The U.S. Labor Department reported on Thursday that the consumer price index, a crucial inflation indicator, increased by 3% in June compared to the same month last year, although this was lower than the 3.3% rise observed in May.

The CPI measures the rate of price change in the U.S. economy, including items such as fruits and vegetables, haircuts, concert tickets, and household appliances.

Mark Zandi, chief economist at Moody's Analytics, stated that the "most uplifting" news for consumers is that inflation for essential items has significantly decreased.

"Zandi stated that the prices for essentials such as food, gasoline, and new-lease rents have remained constant over the past year, meaning individuals are currently paying the same amount for these items as they did a year ago."

Since 1981, the April inflation reading has decreased significantly from its 9.1% peak during the pandemic in 2022.

However, it remains above policymakers' long-term target, around 2%.

Inflation is predicted to decrease in the upcoming months as input cost pressures decrease and weaker consumer demand makes it challenging for businesses to increase prices, according to Sarah House and Aubrey George, economists at Wells Fargo Economics.

The progress is slow-moving, according to them.

Good sign for Fed interest rate cut in September

The Federal Reserve employs inflation statistics to inform its interest rate strategy. In the midst of the pandemic, the Fed increased interest rates to their highest level in 23 years, resulting in higher borrowing costs for consumers and businesses, as the central bank sought to curb inflation.

Officials from the Federal Reserve predicted that they would begin reducing interest rates by the end of 2024 last month.

Zandi stated that inflation has moderated and is now near the Fed's target, indicating a possible rate cut in September.

Gasoline prices weigh on inflation

Gasoline played a large role in June's inflation pullback.

The Consumer Price Index (CPI) data shows that prices decreased by 3.8% in June compared to May. This is a 0.2% increase from the 3.6% decline observed in May.

Weaker gas prices have resulted from tepid gasoline demand, increasing supply, and falling oil costs, AAA stated in June.

Inflation may increase the cost of your next trip abroad due to Fed policy. Economists argue that inflation is not solely the fault of Biden or Trump. Despite inflation cooling, more Americans are still facing financial struggles.

The average U.S. pump prices decreased to $3.48 a gallon on July 1 from $3.52 on June 3, as per the Energy Information Administration's weekly data.

Since June 2023, CPI data shows a 2.5% decrease in gasoline prices.

There's also been a broad pullback in prices at the grocery store.

According to CPI data, the cost of food at home has increased by 1.1% since June 2023.

Amid growing promotional activity among retailers, consumers have more "breathing room" at the store. However, a few "major" companies recently announced price cuts that are likely to pressure competitors' pricing, wrote economists House and George.

'Core' CPI at lowest level in three years

Economists suggest that monthly inflation data is more useful for tracking short-term trends and movements.

They typically prefer to focus on "core" inflation readings, which exclude food and energy prices, which can fluctuate significantly from month to month.

Since August 2021, the monthly core CPI reading has been the smallest increase in about three years, with a 0.1% increase in June. However, it has declined for three consecutive months, from 0.4% in March. To reach the target, economists suggest that the monthly reading should consistently be within the range of approximately 0.2%.

Since June 2023, the smallest 12-month increase in "Core" CPI has been 3.3%, which is lower than the April 2021 gain.

Nearly 70% of the total 12-month increase in core CPI can be attributed to housing, which is the largest component of core CPI and has a significant impact on inflation readings.

One of the reasons inflation hasn't fallen back to target is that shelter inflation has moderated much slower than expected, economists said.

The rental market trends are not accurately reflected in the shelter index due to the government's construction methods.

Since inflation for market rents has decreased, economists anticipate that the demand for shelter will decrease further. For instance, the annual inflation rate for new rental contracts fell to 0.4% in the first quarter of 2024, which is lower than its pre-pandemic baseline, according to Bureau of Labor Statistics data.

The latest CPI report showed a decrease in monthly shelter inflation from 0.4% to 0.2%, marking the smallest monthly increase since August 2021.

J.P. Morgan Private Bank's senior markets economist, Joe Seydl, advised that it should continue to cool off.

"It just takes time," he added.

Services inflation is the trouble spot

As the U.S. economy reopened in 2021, the cost of physical goods increased due to supply chain disruptions caused by the Covid-19 pandemic. At the same time, Americans shifted their spending patterns, allocating more funds towards their homes and less towards services such as dining out and entertainment.

While goods inflation has normalized, services inflation remains a concern.

"Olivia Cross, a North America economist at Capital Economics, stated that the goods side appears harmless at present. However, she pointed out that there is still work to be done in certain areas of core services and shelter."

Since June 2023, the BLS reported that prices for motor vehicle insurance and medical care increased by "notable" 19.5% and 3.3%, respectively.

The increase in car prices a few years ago is likely contributing to the rise in car insurance and repair costs, as it is more expensive to insure and repair more valuable vehicles, according to economists.

It takes a year or more for higher healthcare labor costs to reflect in CPI readings due to a lengthy contracting process, according to Zandi. As pandemic-era wages in healthcare continue to rise, they are expected to push up medical care CPI in the coming year.

Inflationary pressures in the labor market, such as strong wage growth, tend to affect the services sector more than other sectors.

Despite the pandemic-era economy reopening, the labor market has cooled and wage growth has declined, although it is still above its pre-pandemic level.

The labor market has experienced a significant decrease in inflationary pressure, according to Cross.