Inflation fell to 3% for the year ending in June in the consumer price index, the Bureau of Labor Statistics reported Thursday, marking three months of disinflation.
The 0.3-point decline, which was driven in part by falling gas prices, is more than predicted by economists, who projected that inflation would fall to 3.1% in June from the 3.3% notched the month before.
On a month-to-month basis, prices fell 0.1%.
Inflation is the biggest concern facing voters, so the White House and Biden campaign are likely to tout Thursday’s better-than-expected report. President Joe Biden is beleaguered by calls to step aside as the Democratic nominee given his age and widely panned debate debut against former President Donald Trump.
The Federal Reserve, which has raised interest rates to their highest level since the turn of the century, will also be pleased to see inflation continuing its descent toward the central bank’s 2% target. Continued declines may allow the Fed to cut rates sooner than expected, which would be good news for consumers and the labor market.
“These data will raise confidence within the Fed that inflation is indeed on a sustainable path towards 2%,” Rubeela Farooqi, the chief U.S. economist for High Frequency Economics, said in a note on Thursday’s report.
“Core inflation,” which doesn’t include volatile food and energy prices, fell 0.1 percentage points to 3.3% for the year ending in June. That is the lowest such rate since April 2021. Overall, core inflation has generally trended down over the past 12 months in some proof that the Fed’s tightening is starting to pay off.
In fact, annual core inflation has fallen every month since March 2023, except for one month earlier this year when it ticked up slightly.
Annual CPI inflation peaked at about 9% in June 2022, and while it is now much lower than it was, there is still quite a way to go until it reaches the Fed’s preferred 2% level. Fed Chairman Jerome Powell even said recently that he doesn’t think the 2% goal will be achieved for some time.
“You know, we don’t see ourselves getting back to 2% inflation this year or next year — well, maybe late next year — but in the year after,” Powell said during an event this month in Portugal. “The main thing is, we’re making real progress.”
Inflation has been blamed on various factors on both the supply and demand sides of the equation. Republicans have argued that the explosion of stimulus spending during the pandemic and ultralow interest rates supercharged price growth. Democrats have been pointing to supply-side problems and have noted that inflation increased in most Western countries and not just the United States.
Biden has become a major target of voters’ ire over the higher prices. Biden’s economic approval ratings are underwater, which bad news for the president, given that he is in a close election-year contest with rival former President Donald Trump, who is the expected Republican nominee.
The problem for Biden is that many of the prices that families face on a daily or weekly basis are still far higher than they were before he became president. Prices for food at home have risen 21% since Biden took office in January 2021, according to the CPI. The price of gas at the pump is still up nearly 50%.
Hand in hand with continued pain from inflation, consumer sentiment has also been pinched. The Conference Board’s consumer confidence index fell to 100.4 in June, down from 101.3 the month before, the group recently announced.
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Still, despite the higher interest rates, the jobs market has remained relatively stable and even robust by historical standards.
The economy added 206,000 jobs in June, and the unemployment rate rose 0.1 percentage points to 4.1%, the Bureau of Labor Statistics reported last week. That is notably still a low unemployment rate by historical standards.
