Inflation Eases in June, But Oil Price Surge Looms
US inflation slowed down in June to 3.7% from the same period last year, according to data released by the Commerce Department's Bureau of Economic Analysis. This is a slight decrease from May's rate of 4.1%, which was the largest gain since April 2023. The Personal Consumption Expenditures Price Index (PCE) rose by 0.1% on a month-over-month basis, marking its weakest reading since April 2020.
The moderation in PCE inflation is attributed to a decline in oil prices due to a fragile US-Iran ceasefire. However, the truce has since fallen apart, causing Brent oil prices to hover around $90 per barrel and average US gasoline prices to rise above $4 per gallon.
Excluding food and energy components, the PCE Price Index increased by 3.3% on a year-over-year basis in June after rising 3.4% in May. The Federal Reserve tracks the PCE inflation measures for its 2% target, which it has not yet met. Fed Chairman Kevin Warsh emphasized that there is no soft inflation target and that the central bank will continue to work towards lowering inflation back to target.
Economists expect the Fed to raise borrowing costs as soon as September, which could lead to a slowdown in consumer spending. The blow from high inflation has been partially cushioned by generous tax refunds this year, but this support is fading. Consumer spending rose 0.3% in June after surging 0.9% in May.