Inflation has slowed, thanks to a decrease in the gas index and the energy index.
After not budging in May, the Consumer Price Index (CPI) slowed 0.1% in June on a seasonally adjusted basis, the Bureau of Labor Statistics recently reported.
Over the last 12 months, the index for all items rose 3%, a slowdown from the 3.3% rise in May. Food prices largely drove the increase, as well as continuously high housing costs and car insurance prices.
The index for food increased 0.2% in June while the motor vehicle insurance index rose by 0.9%, eliminating gains made in May when the index decreased 0.1%. These increases were offset by a large decrease in the gasoline index, which fell 3.8% in June, a slightly higher decrease than in May.
The energy index also fell in June, by 2%. Other indexes that decreased over the month include airline fares, used vehicles and communication.
On top of shelter and motor vehicle insurance, indexes that increased include household furnishings, medical care and personal care.
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Lowering inflation brings a positive outlook for potential rate cuts later in the year. The Fed has held off on rate cuts and will likely continue to do so until inflation it's targeted 2% mark. Now that inflation seems to be trending down, more rate cuts are likely, assuming the downward pattern holds.
Some experts are predicting as many as three rate cuts by the end of the year, while others believe it’ll likely be two or less. Peter Tchir, head of macro strategy at Academy Securities, a Connecticut money-management firm, explained in a post that if the Fed does cut rates three times, cuts could total 0.75%.
Despite a positive sign that inflation is down, the International Monetary Fund is still encouraging the Federal Reserve to remain cautious about cutting rates later this year.
"We do support the Fed's data-dependent and cautious approach to monetary policy," IMF spokesperson Julie Kozack said. "We also do expect that the Fed will be in a position to reduce rates later this year, and that assessment continues to hold."
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The Federal Reserve recently released a statement explaining that they’re paying closer attention to the job market as well as the goal of lowering inflation. The U.S. added more than 200,000 jobs in June, however this was slightly less than previous months.
If the job market cools, rate cuts may be on the horizon to balance out the economy. In some instances, the Federal Reserve may cut interest rates in response to job shortages to help stimulate the economy and promote job creation.
Federal Reserve Chair Jerome Powell recently addressed the Senate Banking Committee where he explained that the Fed has made progress toward defeating the inflation spikes seen in the last few years, but noted that cutting rates too soon or too late could negatively affect economic growth, employment included.
Many economists believe the first rate cut will occur in September, but Powell declined to confirm or deny that, leaving consumers to wonder if they’ll see rate cuts at all this year.
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