The U.S. Consumer Price Index (CPI) for All Urban Consumers (CPI-U) saw a significant decline of 0.4% on a seasonally adjusted basis in June, marking the largest one-month decrease since April 2020, when it fell by 0.8%. This downturn followed a 0.5% rise in May. On an annual basis, the all items index increased by 3.5% over the 12 months ending in June, a deceleration from the 4.2% increase recorded for the 12 months ending in May. Experts at BMO had anticipated this cooling, with Chief Economist Douglas Porter noting that a 10% month-over-month drop in gasoline prices alone could reduce headline CPI by 0.4 percentage points, making it the fourth-largest single-month decline in nearly a decade.
The primary contributor to this monthly decrease was a substantial 5.7% fall in the energy index in June, contrasting sharply with increases of 3.9% in May, 3.8% in April, and 10.9% in March. Gasoline prices specifically decreased by 9.7% for the month. Despite this, the energy index still showed a 15.7% increase year-over-year. Other indexes that saw decreases include motor vehicle insurance, communication, apparel, medical care, and used cars and trucks.
In contrast to the overall decline, the index for all items less food and energy, often referred to as core CPI, remained unchanged in June. While this indicates a moderation from its previous 0.2% monthly increase and 2.9% year-over-year rise, it reached 2.6% over the year, remaining significantly above the Federal Reserve’s 2% target. The food index rose by 0.2% in June, with both food at home and food away from home contributing to this increase, resulting in a 3.0% increase over the last year. Sticky core inflation remains a concern for monetary policymakers, with analysts like Boris Schlossberg emphasizing that multiple consecutive months of core CPI below 0.2% would be needed to alter the Fed's tightening stance. Market expectations for a Fed rate hike by October are approaching full certainty.
