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Economic News

United States: Inflation Slows a Bit More

July 12, 2023
Francis Généreux
Principal Economist


  • The US consumer price index (CPI) rose 0.2% in June after climbing 0.1% in May and 0.4% in April.
  • Energy prices were up 0.6%, led by a 1.0% increase in gasoline prices. But fuel oil (-0.4%) and natural gas (-1.7%) prices fell. Food prices edged up 0.1%.
  • Core CPI, which strips out food and energy, rose 0.2% in May after three straight months of 0.4% gains.
  • The all items index increased 3.0% for the 12 months ending June, down sharply from 4.0% in May. This was the smallest 12-month increase since March 2021. Core inflation slowed from 5.3% to 4.8%.


June’s decline in headline inflation was the largest since April 2020. This twelfth-straight drop brings inflation down to a more comfortable level and closer to the Fed’s 2% target. Headline inflation is trending in the right direction largely due to a 16.7% drop in energy prices in the past year, including a 26.5% decline in gasoline prices. Food prices were up 5.7% over the past year, but that's an improvement over the nearly 11% figure last fall.


The picture is also improving for core inflation, which excludes food and energy. June's 0.2% monthly gain (rounded up from 0.158%) was the smallest since February 2021. Prices for goods excluding food and energy fell 0.1%, the first meaningful monthly decline this year. This was helped by lower used car and truck prices. We expect prices to keep coming down over the next few months.


Price gains for services excluding energy slowed uncharacteristically in June. Prices were up just 0.3% on the month, the smallest increase since September 2021. Shelter costs grew at a slightly slower pace, and medical care services were flat. Hotel rooms (-2.3%) and airfares (-8.1%) were also down in June, welcome news for consumers this travel season.


But at 4.8%, core inflation is still too high. We expect shelter pressures to ease further, though it remains to be seen. June's print is a step in the right direction, but more slowing is needed to get core inflation—especially services—back to a more comfortable level and keep it there. We’d be surprised to see the US economy actually pull off the soft landing.


Headline inflation slowed sharply in June as last year’s spike in energy prices fell out of the calculation. It’s approaching more comfortable levels for the Fed. But despite improving somewhat, inflation excluding food and energy remains far too high. Given the still-overheated labour market, Fed officials will likely pause their brief pause and raise rates by 25 basis points at the end of the month. They could open the door to additional rate hikes if needed, but if future inflation prints continue moving in the right direction, July’s increase may well be the last.