Wednesday’s Consumer Price Index (CPI) news came in hot, with 11 straight months of inflation reduction and the lowest rate increases since March 2021.
- On Wednesday morning, the U.S. Bureau of Labor Statistics revealed that the yearly rate of CPI growth decreased from 4% in May to 3% in June.
- Core prices similarly changed from 5.3% in May to 4.8%.
- This marks a notable improvement from 12 months prior, when the June 2022 CPI showed prices increased 9.1% from June 2021.
- Shelter and rent continue to be the largest factor pressuring inflation, while airfare, energy prices, and used car sales improved.
- Stocks saw an early rally Wednesday morning following the news, building off of Wednesday’s rally—with notable early gains for the S&P500 (1.06%) and Nasdaq (1.38%).
- Inflation Insights LLC President Omair Sharif declared that the economy will enjoy a “summer of disinflation,” Bloomberg reports.
Why It’s Important
Wednesday’s report shows a great deal of good news for the Federal Reserve and its ongoing monetary tightening policies. However, it is not all good news. The CPI has improved in the past 12 months, but it is well below the target of 2% that it has proclaimed as its target. Today’s report will not change that. Fed officials have signaled that they still intend to hike interest rates another 25 Basis Points at the July 25-26 meeting.
As PGIM Fixed Income strategist Robert Tipp tells Bloomberg TV, good news like this “feels good” but will not tempt the Fed against its prior commitments.
The news also is not reflective of the entire country. Multiple regions are individually facing much higher rates of inflation. Metro areas like Miami (6.9%), Atlanta (4.6%), and Seattle (4.6%) are among the cities currently outpacing the national inflation rate. Housing prices have resulted in South Florida having some of the hottest inflation rates in the country. The Miami-Fort Lauderdale-West Palm Beach area reported 9% in April, while the Tampa-St. Petersburg-Clearwater area reported 7.3% in May.
“There has been significant progress made on the inflation front, and today’s report confirmed that while most of the country is dealing with hotter temperatures outside, inflation is finally cooling. The Fed will embrace this report as validation that their policies are having the desired effect – inflation has fallen while growth has not yet stalled,” Key Private Bank CIO George Mateyo tells CNBC.
“Housing costs, which account for a large share of the inflation picture, are not coming down meaningfully. Because rates had been pushed so low by the Fed during the pandemic and then increased so quickly, the Federal Reserve’s rate increases not only reduced housing demand—as intended—but also severely limited supply by locking homeowners into homes they would have otherwise listed for sale,” says Bright MLS economist Lisa Sturtevant.