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CPI report live updates: Inflation falls again in June as grocery price increases stall.

A year after reaching a 40-year high of 9.1%, U.S. inflation has decreased by approximately two-thirds. However, reducing annual consumer price increases to the more normal 2% level pursued by federal policymakers is anticipated to be more difficult.

Inflation decreased for the twelfth consecutive month in June, as flat grocery prices partially mitigated a rise in gasoline prices and continued rent increases. Core inflation, which the Federal Reserve closely monitors, declined more than anticipated.

According to the Labor Department’s consumer price index, consumer prices increased 3% from a year earlier in June, down from 4% in May. This is the lowest annual growth rate since March 2021. Following a 0.1% increase in May, prices rose 0.2% on a monthly basis in June.

What is the difference between the Consumer Price Index and the Core Consumer Price Index?
Core prices, which exclude volatile food and energy items and reflect longer-term trends more accurately, have been more difficult to control. Following three months of marginally stronger gains, they increased by 0.2% less than anticipated. This brought the annual increase down from 5.3% to 4.8%, its lowest level since October 2021.

In a note to clients, Contingent Macro Research stated, “Overall, while pockets of core price pressures persist, key categories of inflation are slowly cooling.”

In general, the inflation outlook has been uneven. As supply chain disruptions caused by the pandemic have abated, prices for used automobiles and other products have risen more slowly or even declined.

However, the cost of services such as haircuts and auto repairs has continued to rise sharply as wages have risen in response to COVID-caused labor shortages.

How long will the Fed continue to raise rates?

Despite the significant decline in core inflation, the majority of economists believe it will not be sufficient for the Federal Reserve, which closely monitors this key price indicator.

Forecasters anticipate that the Federal Reserve will raise interest rates again this month after pausing in June to evaluate the impact of its aggressive rate-hiking campaign since early 2022. The Fed may maintain rates steady for the remainder of the year as a result of the deceleration in core inflation.

What is the price outlook for gasoline?

The price of gasoline increased 0.8% in June but is down 26.8% from a year ago. In light of lingering recession concerns that have reduced global oil demand and prices, pump prices have been volatile but relatively low.

The national average price of regular unleaded petroleum was $3.54 per gallon on Tuesday, up from $3.59 per gallon a month ago but down from $5 per gallon in June 2022.

How are stock futures trading following the release of the CPI report?
Two hours after the inflation report was released, the S&P 500 index, the broadest measure of the U.S. stock market, gained 1%. The Dow rose 0.86 percent, while the Nasdaq 100 climbed 1.23 percent.

As bond prices increased, the 10-year Treasury yield declined to 3.88 percent. Yields and bond prices shift in opposite directions.

Will food prices decrease in 2023?

In June, grocery prices remained unchanged after declining or rising modestly over the previous three months. This decreased the annual increase from 5.8% to 4.7%. In recent months, the price of commodities such as maize and corn has decreased due to weakening global demand.

The price of eggs decreased by 7.3% in June, following a 13.8% decline in May. After a series of sharp bird flu-related price increases, this is the fourth consecutive monthly decline, and costs have decreased by 7.9% over the past year. Prices for bacon decreased by 1.7%, pastries by 0.7%, and fresh biscuits, rolls, and muffins by 0.1%.

But some expenses increased. Breakfast cereal rose 1.1%. The price of bread increased by 0.7% and is up 11.5% annually. The price of raw ground beef increased by 1.6%, while the price of raw ground chicken rose by 0.8%.

In large part due to swiftly rising wages resulting from labor shortages, restaurant prices have not decreased as much. Over the past year, the price of dining out has increased by 7.7%, or by 0.4% over the past month.

Will rents decrease in 2023?

The cost of housing was once again the largest contributor to inflation, although the increases have moderated. Following a string of similar gains, rent increased by 0.5%, but this is a decrease from a spate of stronger increases. The annual increase in rent was 8.3%, down from 8.7% the prior month. Based on new leases, economists anticipate a substantial reduction in rent increases, but this change has been too sluggish to affect existing leases.

Meanwhile, the cost of apparel increased by 0.3%, the cost of auto repairs increased by 1.3%, and the cost of auto insurance increased by 1.7%.

On the other side of the ledger, prices for used automobiles decreased by 0.5%, resuming a downward trend after a brief increase, and are down 5.2% annually. After a surge caused by a pandemic that drove up costs by roughly one-third, prices had begun to decline. After a two-month decline, prices for new automobiles remained unchanged.

Airline fares decreased 8.7%, primarily due to lower aviation fuel costs, and are down 18.9% annually. The decline in hotel rates reversed May’s increase. Prices for home appliances, which have been declining over the past few months, fell another 1%.

The Federal Reserve is particularly focused on reducing price increases for services, excluding housing, which are driven by wage gains and have remained persistently high despite the moderation in other categories. According to an analysis by High Frequency Economics, this metric remained unchanged in June and increased by 4.1% annually, down from 4.6% the previous month.

Interested in inflation? We have you covered.
USA TODAY investigates the questions you and others pose on a daily basis. The transition from “What is inflation?” to “What happens during a recession?” If you have additional queries about today’s inflation report and other economic trends that affect your life, please review our responses.

How is the rate of inflation measured?

In its most fundamental form, inflation is measured by comparing the current prices of products and services to their historical values.

This is accomplished by analyzing a variety of government-issued data reports.

The CPI is the most notable of these measures. The Consumer Price Index, published by the US Bureau of Labor Statistics, measures the prices of products in an urban market, which represents over 90% of the American population.

The CPI uses a “fixed basket” of approximately 80,000 products and services to calculate these figures. The contents of this container are determined by the Consumer Expenditures Survey, which polls Americans to determine which products are the most essential.

The significance of these goods determines their weight in the CPI; for instance, the price of gasoline, which is an integral part of the cost of living for many people, will contribute more than other items.

The CPI has more than one version, however. The Chained Consumer Price Index for All Urban Consumers is utilized to modify tax brackets.

The advantage of the Chained CPI is that it accounts for the substitution of similar products, which occurs frequently as prices rise due to inflation. This provides a more accurate picture of consumer expenditure and avoids overstating inflation.

Additionally, the price index for Personal Consumption Expenditures (PCE) can be used to measure inflation.

This Bureau of Economic Analysis metric takes a more holistic perspective. The PCE takes into account all expenses, including health care coverage paid for by insurance, when calculating the change in prices for consumer-purchased products.

The Fed views the PCE as the benchmark for measuring inflation. The central bank’s inflation objective is 2%.

The final component of the equation is ‘core inflation,’ which assesses inflation but excludes volatile food and energy prices.

How do higher interest rates combat inflation?

The federal funds rate, which is the rate banks charge each other for overnight loans, is one of the Federal Reserve’s primary instruments for controlling inflation. If the interest rate rises, banks generally pass along their additional expenses.

Even though the Federal Reserve does not directly control all interest rates in the United States, when it raises the Fed funds rate, other interest rates eventually follow, including those applied to adjustable-rate mortgages, credit cards, home equity lines of credit, and other loans.

Higher interest rates reduce borrowing, cool an overheated economy, and forestall inflationary surges.

What is the distinction between the CPI and PPI?

The consumer price index (CPI) measures inflation as experienced by consumers on a daily basis, whereas the producer price index (PPI) measures the average change in selling prices received by domestic producers over time.

According to the Richmond Federal Reserve, PPI, also known as wholesale price inflation, is measured earlier in the production and marketing cycles and tends to influence CPI.

Last year, economists John O’Trakoun and David Ramachandran of the Richmond Federal Reserve wrote, “It has long been believed that changes in the PPI reflect early pricing changes, and some analysts believe that such early pricing changes could be an early indicator of future changes in consumer prices.”

Thursday, June PPI, is due at 8:30 a.m. Eastern Time.

So why is CPI so crucial?

The Federal Reserve bases its interest rate decisions on its dual mandates to achieve price stability and full employment. Even though its stated inflation target is PCE around 2%, the Fed uses CPI as one metric to determine if prices are “stable.”

“CPI probably receives more attention due to the fact that it is used to adjust social security payments and is the reference rate for some financial contracts,” the Cleveland Fed said.

The next Fed policy meeting concludes on July 26. The Fed will announce its interest rate decision that afternoon. The vast majority of economists anticipate that the Fed will increase rates by a quarter point, bringing its short-term benchmark fed funds rate to a range of 5.25 to 5.50 percent.

Is the CPI the only measure of inflation considered by the Federal Reserve?
No. In reality, the Fed’s preferred inflation gauge is the Bureau of Economic Analysis’ Personal Consumption Expenditures Price Index (PCE). PCE is also divided into headline and core measures, which measure a distinct basket of goods and services and survey a larger population.

PCE measures price changes for all direct and indirect consumer consumption, as opposed to CPI, which only measures what urban households pay out of pocket. PCE includes costs covered by employer-provided insurance, Medicare, and Medicaid, whereas CPI would only capture what urban households pay out of pocket for medical expenses.

PCE additionally accounts for substitutions. “Therefore, if the price of bread increases, people purchase less bread, and the PCE uses a new basket of goods to account for this,” the Cleveland Fed explained. “The CPI uses the same basket as it did before.”

How did PCE fare in May?

In May, PCE prices increased 0.1% from April, compared to an increase of 0.4% in April. In May, prices increased by 3.8% on an annual basis, up from 4.3% in April. In June of last year, the year-over-year figure peaked at 7% but is still well above the Fed’s 2% target.

Core PCE increased 0.3% from April to May and 4.6% from one year ago. Since reaching 4.6% for the first time in December, the core PCE has hardly changed annually.

Sunday, June 18, 2023: A driver fills up at a Shell gas station in Englewood, Colorado. Fed rate hike: If inflation is declining, why is the Fed continuing to raise rates?
The Fed may be concerned that inflation is not falling quickly enough. The labor market is weakening, but not enough to attain the Fed’s 2% inflation target by lowering the CPI services rate.

The economy added 209,000 jobs, and the unemployment rate declined to 3.6% last month. The average hourly wage increased by 12 cents to $33.58, bringing the year-over-year increase to 4.4% from 4.3% and well above the Fed’s 2% inflation target of 3.5% or less.

It is important for the Fed to reduce inflation because, as stated by the Fed, “higher prices for essential items, such as food, gasoline, and shelter, add to the burdens faced by many families, especially those struggling with lost jobs and incomes.”




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