US CPI Inflation Update (June 2024)

1. Inflation Trends: The Consumer Price Index (CPI) dropped 0.1% from May, bringing the annual inflation rate down to 3.0% from 3.3%. This marks the first monthly decline since May 2020, thanks to falling gas and car prices.

2. Core Inflation: Excluding energy and food, the core CPI rose only 0.1% from May, the slowest pace since August 2021. This nudged the annual core inflation rate down to 3.3% from 3.4%.

3. Market Reaction: US stocks initially jumped on the news but then settled lower. Treasury yields fell, which could mean lower loan rates for consumers, including mortgages.

With inflation cooling, the chances of a Federal Reserve rate cut are increasing. Investors are now betting on an 89% chance of at least one rate cut by the September 17-18 Fed meeting, up from 73% just a day earlier.

Fed Chair Jerome Powell emphasized that any rate decisions would be based purely on data, not political factors. He stated the Fed's commitment to reducing inflation while maintaining low unemployment, stressing the importance of more positive data before making any cuts.

While shelter costs have been a persistent inflation driver, June showed a slow rise of 0.2%, the smallest in three years. However, the annual increase of 5.2% is still above overall inflation.

High prices over the past three years have left a lasting impression on consumer behavior, with many feeling the pinch despite the recent easing. This is affecting spending patterns and price expectations.