Inflation fell to a 3% annual rate in June, as measured by the gauge favored by the Federal Reserve, a 0.8 percentage point decline from the month before and the lowest reading since September 2021.
The decline in the personal consumption expenditures price index reported Friday morning by the Bureau of Economic Analysis is another key indicator that inflationary pressures are abating in the face of the Fed’s campaign to slow economywide spending by hiking interest rates.
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While still running hotter than is healthy (the central bank’s goal is 2% annual price growth), the inflation rate in the latest report is good news for the economy and for the Biden administration, which has recently touted positive economic developments as proof that President Joe Biden’s agenda is working.
Core PCE inflation, a measure of inflation that strips out energy and food prices and is generally less volatile, is clocking in at a 4.1% year-over-year rate.
“The Fed will also welcome the fact that supercore inflation eased to 4.1% y/y,” Oxford Economics analysts wrote in a note on Friday’s release. “We don’t foresee additional rate hikes by the Fed in H2, but there’s an elevated risk of further policy tightening if the economic data surprise to the upside.”
This latest PCE report comes after other recent inflation reports showed declines that were more pronounced than many economists had expected.
Inflation, as gauged by the consumer price index, fell to a 3% annual rate in June — much lower than the historic highs notched in June 2022. Additionally, wholesale inflation is nearly flat, according to the most recent numbers from June.
The declines in inflation are coupled with other bright spots in the economy, including a surprisingly robust labor market.
The economy added 209,000 jobs in June, according to the Bureau of Labor Statistics, and the unemployment rate has fluctuated between 3.4% and 3.7% for the past year, a historically low level that matches where it was prior to the pandemic.
Biden received another shot in the arm this week when it was announced that GDP for the second quarter pretty far outpaced consensus expectations — showing that the economy is humming right along despite the Fed raising interest rates to the highest level they have been since the dot-com bubble in 2001.
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Economic growth increased to a 2.4% annual rate in the second quarter of this year, up from 2% the quarter before, the Bureau of Economic Analysis reported on Thursday morning. Economists expected a 1.7% rate.
The Fed hiked rates on Wednesday, driving its target range to 5.25% to 5.50%. While central bank officials had penciled in one more rate hike this year, most investors now expect the July increase to have been the terminal rate revision.
