Inflation edged lower in June

July 11, 2024

The consumer price index (CPI) declined 0.1% in June, its first drop since the COVID recession in 2020; expectations were for a 0.1% rise. The decline in the headline index was driven by lower energy prices, which fell for the second consecutive month and provided welcome relief to drivers. Food prices edged higher in June due to pricier dairy items. On an annual basis, CPI rose 3.0% in June, which is down from 3.3% in May and matches the lowest reading a year ago.

Energy prices fell 2% in June, the same as in May. Travelers found ongoing relief at the gas pump as prices declined 3.8% in June after falling 3.6% in May. The back-to-back declines in fuel costs certainly were conducive to a record travel week for July Fourth, as predicted by the American Automobile Association.

Food prices rose 0.2% in June after a 0.1% increase in May. Grocery store shoppers continue to be more discerning as prices rose just 0.1% after no change in May. Consumers are still eating out even as food away from home costs rose 0.4%, the same as in May. Still, a number of fast-food outlets are feeling some hesitancy from diners as many have announced $5 promotion meals to combat inflation fatigue.

The core CPI, which excludes the volatile energy and food sectors, rose 0.1% in June, below expectations for a 0.2% increase. The core reading rose 3.3% from a year ago, down from 3.4% in May.

The improvement in core CPI came from a notable easing in housing costs. Shelter costs rose 0.2% in June after many months of 0.4% increases and higher. June’s increase represented the lowest reading since August 2021 when it rose by the same amount. Away from home, hotel prices fell for the third consecutive month despite record travel during the Memorial Day holiday.

The super core services price measure, which strips out shelter costs, fell 0.1% in June, the second consecutive month of declines. Transportation services again fell 0.5%, matching May's drop. This category includes everything from airfare to vehicle rental, insurance and repairs. Airfares fell 5% in June, the fourth straight month of declines and the largest drop in a year. That was offset by a bounce-back in motor vehicle insurance and vehicle rental prices, up 0.9% and 1.3%, respectively.

On a momentum basis, the three-month annualized pace in the super core measure sunk to 1.3% in June from 4.2% in May, the lowest result since 2021. Improvements were seen in other measurements. The six-month annualized pace fell to 4.7% from 5.5%. On an annual basis, the super core services measure rose 4.6%, down from 4.7% in May.

Recreation services declined for the second consecutive month. In particular, streaming services fell 0.5% in June after dropping 1.2% in May as consumers push back against higher costs. Health care costs moderated further in June. Medical service costs rose 0.2%, which compares with a 0.7% rise at the start of the year. Even day care and preschool costs provided a brief respite to parents; they were unchanged in June after many months of gains.