Topline
Inflation moderated to its lightest level in years, the federal government reported Thursday morning, coming in far better than economist estimates as Americans and policymakers alike look to put this inflationary cycle in the rearview mirror.
Inflation is getting much better, but remains historically elevated.
Key Facts
Inflation was 3% in June, according to year-over-year changes in the Bureau of Labor Statistics’ consumer price index metric, the best inflation mark since June 2023’s 3%.
That is far better than May’s 3.3% headline CPI inflation and beats consensus economist forecasts of 3.3%, according to FactSet, the most palatable mark since April 2021.
Consumer prices declined 0.1% from May to June, lighter than estimates of 0.1%, beating April to May’s 0% change and dipping month-over-month for the first time since 2020.
Core inflation, which excludes the more price sensitive food and energy inputs, was 3.3% last month, besting projections of 3.4%, where it stood in May.
Both inflation measures are well above policymakers’ 2% target, but are much more palatable than they were in the recent past, with headline inflation down about six percentage points from its four-decade high of 9.1% in June 2022.
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Key Background
The consumer price index measures price changes across a predetermined basket of goods and services that the typical American consumer may spend their paychecks on, from bacon to textbooks. After almost 13 years of sub-4% inflation, it roared beginning in 2021 due to several factors including Russia’s invasion of Ukraine and COVID-19 era stimulus checks, sitting above that mark every month from April 2021 to April 2023. Though inflation is far better now than it was during that stretch, it remains historically high, considering inflation wasn’t above 3% throughout 2012 to 2020. The Federal Reserve hiked interest rates from near-zero to over 5% beginning in March 2022 in response to the jump in consumer prices, roiling as loans like mortgages and corporate debt financing became far more expensive. Monthly CPI releases have thus become must-watch events for financial markets in recent years, as lower inflation bolsters the case for interest rate cuts, which should stimulate economic growth and expand profit margins.
Surprising Fact
General inflation is coming down toward more normal levels, but one key component of the CPI remains extremely bloated: Shelter. Americans paid 5.2% more for rent and monthly homeowner payments last month than they did in June 2023, with the CPI’s shelter subindex increasing a whopping 26% over the last five years. Annual shelter inflation is significantly higher than it was even during the apex of the 2000s housing market bubble. Drastically higher mortgage rates—up from about 3% to 7% over the last three years—still high price tags, and a tight rental market have all contributed to the higher costs for Americans to put roofs over their heads.
Tangent
Inflation is among the top voter issues heading into November’s presidential election The ongoing inflationary cycle has almost entirely coincided with President Joe Biden’s term, with the overall consumer price index up 20.6% dating back to Dec. 2020. That’s partially a coincidence given the global nature of this inflationary cycle and 2020’s temporary dip in prices during the beginning of the pandemic, but a majority of voters say they trust Donald Trump more regarding inflation. Trump has spewed numerous falsehoods about inflation, claiming last month it’s at “almost 50%” under Biden, more than twice as severe as reality.
Further Reading