Inflation in the US falls to 3% – lowest rate in 2 years

After two years of painfully high prices, inflation in the United States has hit its lowest point in more than two years – 3 percent in June compared to 12 months earlier – a sign that the Federal Reserve’s interest rate hikes have steadily slowed price rises across Europe. slowed down. the economy.

The inflation rate the government reported on Wednesday was down sharply from an annual rate of 4 percent in May, but still above the Fed’s target rate of 2 percent. Over the past 12 months, gasoline prices have fallen, the cost of groceries has risen more slowly, and used cars have become cheaper.

From May to June, overall prices rose 0.2 percent, compared to just 0.1 percent in the previous month, but still relatively mild.

At the same time, underlying inflation remains persistently high and a nagging concern for the Fed, which will almost certainly raise its key interest rate again when it meets in two weeks. The Fed has raised its benchmark interest rate by as much as 5 percentage points since March 2022, the strongest rate of increase in four decades.

Slowest pace since 2021

The year-over-year inflation rate for June marked the mildest increase since March 2021, when the current period of painfully high inflation began as the economy roared out of the pandemic recession.

But with most inflation measures still uncomfortably high, the Fed hardly seems ready to halt its rate hikes. The expected hike later this month follows the central bank’s decision to pause its rate hikes last month after 10 consecutive hikes. Fed policymakers have indicated that they could raise rates again at the next meeting in September.

However, some economists have suggested that if inflation continues to slow and the economy shows enough signs of cooling, the July hike could be the Fed’s last.

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For example, used car prices are falling. Automakers are finally producing more cars now that inventory shortages have eased. The prices of new cars are also starting to fall as a result.

A continued slowdown in inflation could provide significant relief for US households pressured by the price hike that began two years ago. Inflation spiked as consumers spent more on things like exercise bikes, standing desks and new patio furniture, fueled by three rounds of stimulus checks. The jump in consumer demand overwhelmed supply chains and ignited inflation.

Many economists have suggested that President Joe Biden’s March 2021 stimulus package has amplified the wave of inflation. At the same time, however, inflation also increased abroad, even in countries where stimulus measures were much lower. The Russian invasion of Ukraine also caused a spike in energy and food prices worldwide.

Now, however, gas prices have fallen to about $3.50 per gallon on average nationally, down from a peak of $5 last year. And food prices are rising more slowly, with some categories reversing previous spikes.

Egg prices, for example, have fallen to a national average of $2.67 per dozen, compared to a peak of $4.82 at the beginning of this year, according to government data. The cost of eggs had skyrocketed after bird flu swept the nation’s chicken herds. Despite the decline, they remain above the average pre-pandemic price of about $1.60. Milk and ground beef remain high, but have fallen from their peak prices.

Still, the cost of services such as restaurant meals, car insurance, child care and dental services continues to rise rapidly. Car insurance now costs an average of 17 percent more than a year ago.