Annual US inflation slowed significantly in June, possibly prompting the Federal Reserve to end its cycle of the fastest interest rate hikes since the 1980s.
Inflation as measured by the personal expenditure price index (PCE) rose 0.2% last month after rising 0.1% in May, the Commerce Department said on Friday. In the 12 months to June, the PCE price index rose 3.0%. It was the smallest annual increase since March 2021 and followed a 3.8% rise in May.
Excluding volatile food and energy components, the core PCE price index rose 0.2% after rising 0.3% in the previous month. That lowered the annual increase in the quoted core PCE price index to 4.1%, the smallest increase since September 2021. The annual core PCE price index rose 4.6% in May.
Annual inflation slowed as last year's surge was removed from the count. Food commodity prices returned to levels prior to Russia's invasion of Ukraine in February 2022. Economists have forecast the core PCE price index to rise 0.2% and rise 4.2% annually. The Federal Reserve monitors the PCE price index for a 2% inflation target.
The US central bank on Wednesday raised its policy rate by 25 basis points to a range of 5.25%-5.50%, a level last seen before the 2007 housing market crisis and which has not happened consistently for about 22 years.
Fed Chairman Jerome Powell told reporters that "The Fed may raise the funds rate again at its September meeting if the data warrants it." Powell also added that "it is possible that we will choose to keep rates constant at that meeting."
Slow inflation growth and modest consumer spending growth have increased the chances for the economy to achieve the soft landing that policymakers envisioned.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.5% last month, the Commerce Department also reported. Data for May has been updated to show spending rose 0.2% versus 0.1% as previously reported. Economists had forecast spending rising 0.5%.
This data was included in the second quarter GDP progress estimate, which was published on Thursday. Consumer spending rose at an annualized rate of 1.6% last quarter, slowing from a 4.2% rate in the January-March quarter. The reduction in spending was partly due to the difficulty of adjusting the data for seasonal fluctuations following the spike in the first quarter.
The increase was enough to boost economic growth at a rate of 2.4% last quarter from the 2.0% rate reported in the first three months of the year.
