Inflation Drops to 3%

In June, inflation reached its lowest level in over two years, indicating a slowdown in price increases amidst the Federal Reserve's efforts to raise interest rates. The Labor Department reported that the Consumer Price Index grew annually by 3%, slightly below economists' expectations of a 3.1% increase, according to FactSet. This marked the smallest increase since March 2021. On a monthly basis, inflation rose by 0.2%.

The annual core inflation rate, which excludes volatile food and energy prices, increased by 4.8%. Economists tend to focus on this "core" inflation as it provides a more accurate measure of price increases.

While inflation has cooled off from the four-decade high it reached last year, largely due to the Federal Reserve's interest rate adjustments, prices, particularly core inflation, are still rising above the Fed's target of 2%. The central bank has signaled the possibility of further interest rate hikes.

Despite the positive inflation report, Bright MLS chief economist Lisa Sturtevant highlighted that the Fed would likely resume rate hikes at its upcoming meeting, aiming to achieve the desired 2% inflation target. Sturtevant pointed out that housing costs contribute significantly to inflation and have not shown significant decreases.

According to the Labor Department, housing costs were the primary driver of the price increase in June, with shelter costs rising by 7.8% compared to the previous year. This outpaced the increases in food prices (5.7%) and new vehicle prices (4.1%).

Some economists speculate that if inflation continues to decelerate and the economy shows signs of cooling, the July increase could be the last rate hike by the Federal Reserve.