Inflation falls in June for the first time since 2020 as consumer price increases continue to slow

A closely watched U.S. inflation report showed that consumer price increases slowed further in June, according to the latest data from the Bureau of Labor Statistics released Thursday morning.

The consumer price index (CPI) fell 0.1% from the previous month and rose just 3% from a year earlier in June, slowing from May’s flat monthly increase and the 3.3% annual rise in prices. Both measures beat economists’ expectations for a 0.1% monthly increase and a 3.1% annual increase.

It is worth noting that this is the first time since May 2020 that the monthly CPI has been negative. It is also the smallest annual price increase since March 2021.

On a “core” basis, which excludes the more volatile costs of food and gasoline, prices in June rose 0.1% from the previous month and 3.3% from a year ago, a smaller increase than the May data. Economists had expected core prices to rise 0.2% monthly and 3.4% year-on-year.

This is the smallest monthly increase in core prices since August 2021.

Markets opened higher following the report, with the 10-year Treasury yield (^TNX) falling about 10 basis points to trade around 4.2%.

Inflation has remained stubbornly above the Federal Reserve’s 2% target on an annual basis. But recent economic data has helped fuel talk that the central bank should cut rates sooner rather than later.

Immediately after Thursday’s encouraging inflation data, markets were pricing in about an 89% chance that the Federal Reserve would begin cutting rates at its September meeting, up from 75% the day before. according to CME Group data.

The data is the latest to support a Fed rate cut.

Learn more: What the Fed’s Interest Rate Decision Means for Bank Accounts, CDs, Loans and Credit Cards

Friday, Bureau of Labor Statistics Data showed the labor market added 206,000 nonfarm payrolls last month, compared with more than 190,000 expected by economists. However, the unemployment rate unexpectedly rose to 4.1%, from 4% the previous month. That was the highest reading in nearly three years.

The core PCE price index, the Fed’s preferred gauge of inflation, showed that inflation slowed in May. The annual change in the core PCE index was 2.6 percent in May from a year earlier, in line with estimates and the smallest annual increase in more than three years.

“The decline in the consumer price index between May and June will not last, but it strengthens the case for the Federal Reserve to cut interest rates in September, especially as the labor market has weakened,” wrote Ryan Sweet, chief U.S. economist at Oxford Economics.

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However, the economist warns: “We are wary of reading too much into the June CPI decline and do not believe it is a new trend.”

Seema Shah, head of global strategy at Principal Asset Management, agreed that the latest data “puts us firmly on track for a Fed rate cut in September,” but that “a July taper is still not on the horizon.”

“This would not only raise questions like ‘what do they know…