Inflation will stay low for a while longer before the Federal Reserve cuts interest rates in the United States. It’s likely to get another one on Thursday.
The consumer price index is expected to barely go up in June, after not going up at all in May. Also, the rate of inflation might be the lowest it has been since the beginning of 2021. Watch out for these things in the CPI.
A small price rise
The consumer price index is only expected to go up 0.1% in June, which is the same amount as the previous month’s rise.
That’s great news after big jumps in prices in the first three months of the year that undid a big drop in inflation near the end of 2023.
Is it enough to make the Fed cut rates soon? They say it might happen by September if a few more readings show that inflation is still low.
Powell said the same thing to the Senate on Tuesday.
Powell talked about the Fed’s long-term goal of 2% inflation. He said, “The most recent inflation readings…have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably towards 2%.”
Important “core”
If the core rate of prices went up more, it wouldn’t be good enough for the Fed to see headline inflation go down.
The core rate, which tends to be a better indicator of future U.S. inflation, leaves out food and energy costs because they go up and down so often.
Core prices will likely rise by only 0.2% in June, making it two months in a row that they will rise. It would be the smallest rise in two weeks in almost a year.
In times of low inflation, core prices tend to go up by 0.1% or 0.2% each month.
Rate of inflation
It’s possible that inflation will drop from 3.3% in May to 3.1% in June, which would be the lowest level since the spring of 2021.
Core inflation, on the other hand, is expected to stay high at 3.4%.
For the Fed to feel comfortable lowering rates, inflation needs to drop below 3%. Powell did say, though, that the Fed won’t wait until inflation hits its 2% goal before lowering interest rates.
The two biggest
Rising costs of housing and consumer goods like travel, recreation, and transportation (which includes things like auto repair, car insurance, and more) have kept inflation high for longer.
Home prices have gone up 5.4% in the last year.
In the year ending in May, service prices that didn’t include housing and energy went up at a rate of 4.7%. This is an indirect way to measure labour costs. What the Fed calls this level of inflation is “supercore” inflation.
Both of these groups went up by 2% to 3% a year before the pandemic.
