Reduced US Inflation Alleviates Financial Stress From Airfare to Groceries

The United States has seen a remarkable decrease in inflation after enduring two years of significantly high prices. As of June, the inflation rate has dipped to a two-year low of 3%, compared to the previous year, largely due to a drop in prices for gasoline, airline tickets, used cars, and groceries.

The inflation rate reported by the government on Wednesday showed a steep decline from May’s annual rate of 4%, although it remains above the Federal Reserve’s target rate of 2%. In the span of one month, from May to June, there was a 0.2% increase in overall prices, a minor hike from the preceding month’s 0.1% increase.

RELATED COVERAGE
Wall Street Celebrates as Inflation Slowdown Spurs Rally
‘Richcession’, ‘Rolling Recession’, or No Recession at All?
Soft Landing for US Economy Might Be Attainable with June’s Sluggish Hiring

Despite the encouraging inflation data released on Wednesday, it is almost a given that the Federal Reserve will increase its benchmark rate at its next meeting in two weeks. However, given the slowing or even declining price increases across a wide range of goods and services, some economists believe the central bank might delay another expected rate increase in September if inflation continues to decelerate.

Senior economist at MacroPolicy Perspectives, Laura Rosner-Warburton, suggests the possibility of halting further rate hikes for the remainder of the year if the downward trend persists.

Investors were thrilled by the positive news about inflation, leading to a significant increase in stock and bond prices on Wall Street.

Since March 2022, the Federal Reserve has ramped up its benchmark rate by a hefty 5 percentage points, marking the fastest rate increase in forty years. It is predicted to continue this trend this month, following its decision to halt its rate hikes last month after 10 straight increases.

Over the past two months, inflation has decelerated rapidly, falling from almost 5% in April to the current 3%. Much of this is attributed to the receding surge in food and energy prices, which spiked following Russia’s invasion of Ukraine in the spring.

However, other significant contributors to high prices are also starting to dwindle. Used car prices dropped 0.5% from May to June, following two months of considerable increases. Meanwhile, the construction of more apartments nationwide has led to a deceleration in rental costs in June.

Excluding the unpredictable food and energy prices, core inflation saw a smaller than expected increase of just 0.2% from May to June, marking the smallest monthly hike in almost two years. Although the rate is still relatively high compared to last year at 4.8%, it is down from May’s annual rate of 5.3%.

If inflation continues to slow and the economy displays enough signs of cooling, some economists believe the Federal Reserve might halt rate increases after July.

The year-over-year inflation rate for June was the most moderate since March 2021, marking the onset of the surge in inflation as the economy started to recover from the pandemic-induced recession.

As supply shortages are addressed, automakers are ramping up car production, which is causing both used and new car prices to stabilize.

If the inflation slowdown continues, American households, which have been feeling the financial strain due to the price surges that started two years ago, could experience significant relief. Inflation escalated as consumers increased their spending on goods like exercise bikes, standing desks, and patio furniture, thanks to three rounds of stimulus checks. This increase in demand strained supply chains and led to inflation.

Economists have pointed to President Joe Biden’s stimulus package in March 2021 as a factor that may have exacerbated the inflationary wave. Despite this, inflation also increased abroad, even in countries where less stimulus was implemented. Russia’s invasion of Ukraine contributed to global increases in food and energy prices.

Now, however, average national gas prices have decreased to roughly $3.50 per gallon, down from last year’s peak of $5. Additionally, grocery prices are on a slower incline, with some categories even reversing their prior surges.

The prices of eggs, for example, have fallen to a national average of $2.67 per dozen from a high of $4.82 at the beginning of this year, according to government data. Despite this decrease, they still remain higher than the pre-pandemic average price of about $1.60. Prices of milk and ground beef remain high but have eased from their peaks.

However, the prices for services such as restaurant meals, car insurance, child care, and dental services continue to climb quickly. On average, auto insurance now costs 17% more than it did a year ago.

Frequently Asked Questions (FAQs) about US Inflation Rate

More about US Inflation Rate

• US Inflation Rate Data
• Federal Reserve’s Monetary Policy
• Impact of Inflation on the Stock Market
• Factors Affecting US Inflation
• Understanding Core Inflation