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The rate of US inflation fell significantly in June, dropping to 3% over the past 12 months and declining 0.1% for the month, according to fresh Consumer Price Index (CPI) data published today.

The 3% inflation rate, as measured by the CPI, is down from 3.3% in May and is the lowest it has been since June of 2023.

The result was better than expected, as economists predicted inflation at 3.1% and a 0.1% monthly gain in June.

This was the third straight month that the inflation rate fell.

Core CPI also drops

The core CPI, which excludes more volatile food and gas prices, also beat estimates at 3.3%. Economists had predicted 3.4% for core CPI. The core CPI was 3.4% in May.

Further, the 0.1% monthly gain in core CPI was the lowest increase since April of 2021, according to the Bureau of Labor Statistics, which produces the CPI. Analysts had projected a 0.2% core CPI increase in June.

Energy costs fell 2.0% in June, with gasoline prices dropping 3.8% and fuel oil falling 2.4%. Over the past 12 months, the inflation rate for energy is 1%, and for gas, it is -2.5%.

Food prices rose 0.2% in June and are up 2.2% over the past 12 months. The inflation rate for food at home is 1.1%, while food away from home is 4.1%, with the latter rising by 0.4% in June.

Used car and truck prices plummeted 1.5% in June and are 10.1% lower over the past year. New car prices fell 0.2% in June and are down 0.9% over the past year.

Shelter costs increased just 0.2% in June, down from a 0.4% rise in May. However, the 12-month inflation rate for shelter is still high at 5.2%.

In addition, transportation services dropped for the second straight month, falling 0.5% in June. However, the 12-month rate of inflation is still high, at 9.4%.

Will it move the needle for the Fed?

The markets were all trending higher in pre-market trading on the good inflation news. This marks the third consecutive month that inflation has dropped — from 3.5% in March before falling in April, May, and June.

Federal Reserve officials have repeatedly said they want inflation rates to move sustainably lower toward their 2% target, so a three-month streak is certainly heading in the right direction.

The Fed, however, emphasizes the Personal Consumption Expenditures (PCE) index, which was at 2.6% in May after two straight monthly declines. The June PCE results will be released on July 26.

The Federal Reserve’s summary of projections called for one federal funds rate cut in 2024, but the markets expect to see more.

More than one rate cut in 2024?

According to CME FedWatch, which polls interest rate traders on what they think the Fed will do, 81% predict a rate cut at the September 18 FOMC meeting, while 47% see rates in the 4.75% to 5.00% range at the November 7 meeting, indicating two rate cuts.

Another 40% call for rates in the 4.50% to 4.75% after the December 18 FOMC meeting — indicating some momentum for potentially three cuts this year, or at least two.

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