Finally, Prices Actually Fall

The CPI declined slightly in June. We may not be out of the woods yet.

The Bureau of Labor Statistics just released the Consumer Price Index for June. For the first time since the pandemic in 2020, prices inched lower by 0.1%. That reduced the 12-month inflation rate to 3%. This is good news for consumers, but we may not be out of the woods just yet.

Energy prices, in general, fell in June. Gasoline prices fell 3.8% after falling 3.6% in May. Excluding energy and food prices, the CPI increased 0.1% in June, which is also very encouraging. Many people are hoping this latest data will encourage the Federal Reserve to start to reduce the high interest rates.

The next Fed Open Market Committee (FOMC) meeting is at the end of this month. While the inflation numbers look promising and many economists are encouraging the Fed to reduce interest rates this month, the Fed will probably hold rate constant.

The FOMC meets again in mid-September. By then the Fed will have the CPI number for July and August. If the pattern of monthly increases continues to remain near zero, the Fed will cut rates then. But energy prices are rising in July. Depending on a number of factors, energy prices could increase further in August.

If that happens, the Fed will not cut interest rates in September but will consider…