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Inflation dips for the first time in over four years

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Are interest rate cuts next?

Declining interest rates: ©Who is Danny - stock.adobe.com

Declining interest rates: ©Who is Danny - stock.adobe.com

The monthly inflation rate dipped in June for the first time in more than four years, bolstering expectations that the Federal Reserve may start lowering interest rates later this year. The consumer price index (CPI), which measures the costs of goods and services across the U.S. economy, declined by 0.1% from May, reducing the 12-month rate to 3%, its lowest level in over three years, the Labor Department reported Thursday.

The all-items index rate fell from 3.3% in May, marking a significant change from the previous months when it was flat. This is the first decrease since May 2020. Excluding volatile food and energy costs, the core CPI increased by 0.1% monthly and 3.3% annually, compared to forecasts of 0.2% and 3.4%, respectively, as reported by the Bureau of Labor Statistics. The annual increase in the core rate is the smallest since April 2021.

A 3.8% drop in gasoline prices played a major role in curbing inflation for the month, counterbalancing 0.2% increases in both food prices and shelter costs. Housing-related costs, which constitute about one-third of the CPI, have been one of the most persistent components of inflation, so a slowdown in their rate of increase is another positive sign, according to economists.

Medical care services and medical care commodities were both up 0.2% for the month, with an annual increase of 3.3% and 3.1% respectively. Used vehicle prices decreased by 1.5% month-over-month and were down 10.1% from a year ago. This category was a primary driver in the initial surge in inflation back in 2021.

The CPI peaked above 9% in June 2022, leading the Fed to implement a series of interest rate hikes that concluded in July 2023. Since then, the central bank has maintained its benchmark borrowing rate in the range of 5.25%-5.50%, even as inflation has declined sharply over the past few years.

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