Cooling inflation may pave way for interest rate cut soon

WASHINGTON (AP) — Inflation in the United States cooled in June for a third straight month, a sign that the worst price spike in four decades is steadily fading and may soon usher in interest rate cuts by the Federal Reserve.

Consumer prices declined 0.1 percent from May to June after having remained flat the previous month, the government reported Thursday. Measured from 12 months earlier, prices were up 3 percent in June, down from 3.3 percent in May.

The latest inflation readings could help convince the Fed’s policymakers that inflation is returning to its 2 percent target. A brief pickup in inflation early this year had caused Fed officials to scale back their expectations for interest rate cuts. They responded by saying they would need to see several months of mild price increases to feel confident enough enough to cut their key rate from its 23-year high.

Should inflation remain low through the summer, many economists expect the Fed to begin cutting its benchmark rate in September.

Even as inflation slows, though, the costs of food, rent, health care and other necessities remain much higher than they were before the pandemic — a source of public discontent and a potential threat to President Joe Biden’s reelection bid.

Excluding volatile food and energy costs, so-called core prices climbed just 0.1 percent from May to June, below the 0.2 percent increase in the previous month. Measured from a year ago, core prices rose 3.3 percent in June, down from 3.4 percent May. Core prices are thought to provide a particularly telling signal of where inflation is likely headed.

On Wednesday, Chair Jerome Powell said there had been “considerable progress” in slowing inflation to the Fed’s 2 percent target. At the same time, he cautioned that the central bank’s policymakers want to see further such data.