US inflation slows to slowest pace in a year

U.S. price increases slowed in June, raising hopes that the world's largest economy is recovering from the high inflation that hit after the pandemic.

Prices rose 3% in the 12 months to June, with lower gasoline prices contributing to the lowest price inflation in a year, the Labor Department said.

This is the third consecutive month of falling inflation, easing financial pressures on households and potentially paving the way for an interest rate cut by the US central bank as early as September.

The Federal Reserve's key interest rate has been at more than 5.3%, its highest level in nearly two decades, since last year.

Fed officials say high borrowing costs are weighing on the economy, helping to reduce upward price pressures.

Analysts say the latest report could help convince the bank that it has done enough to address the problem.

From May to June, prices actually fell by 0.1% – the first net monthly decline in years.

“The latest inflation numbers put us firmly on track for a Fed rate cut in September,” said Seema Shah, chief global strategist at Principal Asset Management.

The progress is welcome news for the White House, which is grappling with widespread economic discontent as rising living costs and interest rates weigh on households.

Over the past year, prices for gasoline, cars and household appliances have fallen, but the cost of other necessities has continued to rise.

Grocery prices have increased 1.1% since June 2023, while housing costs have climbed 5.2%.

Last month, increases in rents and prices for services such as veterinary care slowed, noted Greg McBride, an analyst for Bankrate.com.

Housing and utility costs have long been the sticking points in inflation figures, but perhaps that trend is starting to reverse,” he said.

In hearings in Washington this week, Republican lawmakers warned Fed Chairman Jerome Powell that cutting rates before the November election would be seen as an attempt by the president to “revive the economy.”

Mr. Powell declined to speculate on when the Fed would make its next decision, but defended the bank's policy independence and said its decision would be based on data.

He told lawmakers that a cut was the most likely next step, noting that the bank was paying attention not only to inflation figures but also to signs of a slowing economy.

“We are very aware that we are facing double-edged risks and we are determined to balance them as best we can,” he said. “We want to see more positive inflation data and we also want to continue to see a strong labor market.”

In June, the U.S. unemployment rate exceeded 4% for the first time in more than two years.

Consumer spending, the main driver of the U.S. economy, has also shown signs of weakening as a growing number of businesses warn that households are cutting back on spending.

Food giant Pepsi-Co became the latest to do so on Thursday.

In a quarterly update to investors, the group said sales at its North American units Frito-Lay and Quaker Foods fell in the April-June period from a year ago. Overall, revenue rose about 1% globally.

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