WASHINGTON — The Federal Reserve’s favorite inflation measure remained subdued last month, adding to evidence that price pressures are steadily easing and paving the way for the Fed to Start lowering interest rates this fall.
Prices rose just 0.1% from May to June, the Commerce Department said Friday, up from an unchanged reading the previous month. Inflation fell to 2.5% from 2.6% a year earlier.
Excluding volatile food and energy prices, core inflation rose 0.2% from May to June, up from 0.1% the previous month. Measured against a year earlier, core prices rose 2.6%, unchanged from June.
Viewed as a whole, Friday’s figures suggest that the worst period of inflation in four decades, which peaked two years ago, is underway. almost overFed Chairman Jerome Powell has said the cooling price data this summer strengthened his confidence that inflation returns sustainably to the central bank’s target level of 2%.
Lower interest rates and weaker inflation, along with a still a solid labor marketcould also improve Americans’ assessment of the economy and influence this year’s presidential election between Vice President Kamala Harris and former President Donald Trump.
Friday’s report also showed that consumer spending rose in June. So did incomes, even after adjusting for inflation. The report suggested that we are experiencing a rare “soft landing,” in which the Fed has managed to slow the economy and inflation by raising lending rates without triggering a recession, so far.
Consumer spending rose 0.3% from May to June, slightly lower than the 0.4% gain in the previous month. Incomes rose 0.2%, lower than the 0.4% in May.
With the pace of employment cooling and the economy growing steadily, if not robustly, it is considered a near certainty that the Fed will cut its benchmark interest rate when it meets in mid-September. The central bank meets for the first time next week. But Powell is expected to say afterward that Fed policymakers still want to see additional data to make sure inflation is coming down consistently.
Last month, food prices rose just 0.1%, continuing a series of modest cost increases after grocery prices rose sharply in 2021 and 2022. Compared to a year ago, food prices rose just 1.4%.
Energy prices fell 2.1% from May to June, led by sharply lower gas prices. Energy costs have risen 2% over the past year. New car prices fell 0.6% last month, after rising sharply during the pandemic.
After jumping to 7% in 2022, according to the measure released Friday, inflation has fallen steadily over the past year. Yet the cost of everyday necessities such as groceries, gasoline and rent is still far higher than it was three years ago — a fact that has left many voters disappointed with the Biden-Harris administration’s handling of the economy.
Inflation is cooling as the economy continues to grow steadily. On Thursday, the government reported that the U.S. economy grew by a healthy annual interest rate of 2.8% in the April-June quarter, with consumers and businesses spending at a brisk pace. That was up from an annual growth of just 1.4% in the first three months of the year.
Businesses are still adding jobs, though most of the hiring in recent months has been concentrated in just two sectors of the economy: health care and government. The unemployment rate has risen slightly to a still-low 4.1%, after the longest stretch below 4% in half a century.