June CPI Decline Leaves the Door Open to September Rate Cut
June CPI Decline Leaves the Door Open to September Rate Cut
For the first time since the pandemic, overall prices fell in June, surprising economists and increasing the likelihood of a September interest rate cut.
CPI inflation was milder than expected, at -0.1% over the month and 3.0% over the year, and core CPI inflation rose only 0.1%, falling to 3.3% over the year.
Part of the decline was due to falling gasoline prices, a trend which may be temporary. But another major factor was a decline in housing cost growth, which economists had long been expecting to see show up in the CPI, and which is likely more durable.
Of the eight CPI categories, housing remains the one with the highest cost growth over the year at 4.4%. But its growth is finally slowing down.
With year-over-year growth in average hourly earnings clocking in at 3.9%, wages have now grown 0.9% over the year, adjusted for CPI inflation. That extends the stretch of positive annual real wage growth to 14 months. That increase comes on the heels of a 25-month period of annual real wage declines when prices were outpacing wages.
Many economists worry about signs that the economy is weakening, but positive real wage growth likely puts a floor under consumer spending and GDP growth in the coming months.
Markets had already been pricing in a rate cut in September, and today’s CPI report raises the likelihood even further. Rate cuts will come as a relief to families who want to buy homes or cars, those with revolving debt, and businesses that want to expand. High financing costs are preventing businesses from seeking loans to open new locations, or make new capital investments, and that is weighing on job growth outside the public sector and healthcare.
While a few basis points of rate cuts won’t immediately change the math on major capital investments, the start of interest rate normalization will likely boost business and consumer confidence in the future outlook, and get the wheel rolling on some investments again.
Take a tour of the latest data on inflation through ZipRecruiter charts.
