The Federal Reserve’s favored inflation measure remained low last month, bolstering evidence that price pressures are steadily cooling and setting the stage for the Fed to begin cutting interest rates in September.
Prices rose just 0.1% from May to June, the Commerce Department said Friday, up from the previous month’s unchanged reading. Compared with a year earlier, inflation declined to 2.5% from 2.6%.
Excluding volatile food and energy prices, so-called core inflation rose 0.2% from May to June, up from the previous month’s 0.1%. Measured from one year earlier, core prices increased 2.6%, unchanged from June. Economists closely watch core prices, which typically provide a better read of future inflation trends.
Taken as a whole, Friday’s figures suggest that the worst streak of inflation in four decades, which peaked two years ago, is nearing an end. Fed Chair Jerome Powell has said that this summer’s cooling price data has strengthened his confidence that inflation is returning sustainably to the central bank’s target level of 2%.
Friday’s report also showed that consumer spending ticked higher in June. So did incomes, even after adjusting for inflation. The report suggests that a rare “soft landing,” in which the Fed manages to slow the economy and inflation through higher borrowing rates without causing a recession, is taking place—so far.
“A two-word summary of the report is, ‘good enough,’” says Robert Frick, an economist with the Navy Federal Credit Union. “Spending is good enough to maintain the expansion, and income is good enough to maintain spending. And the level of inflation is good enough to make the decision to cut rates easy for the Fed.”
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