Will June mark the start of the Fed's season of declining inflation?

The annual inflation rate for the CPI for June, which was revealed on Wednesday, was 3%, lower than anticipated and the lowest level since March 2021. The CPI data for June signalled a significant decline in a number that had reached 4% in May and reached 9% in June 2022, the highest level in four decades.

Federal Reserve officials may finally be beginning a more favouring element in their policy meetings with the first of what many analysts anticipate to be a run of data indicating renewed declines in important price measures, a year after U.S. inflation peaked and sparked an aggressive turn in monetary policy.

A different index of underlying inflation, which excludes goods like food and energy that are linked to global commodity markets, fell to 4.8% from 5.3%, the greatest decline in more than three years.

The long-awaited steady shift down in that so-called "core" inflation, which might endure for the upcoming few months, is beginning to get more support among economists and some Fed officials in the wake of Wednesday's data on how prices behaved in the previous month.

The Federal Reserve will not be discouraged from raising interest rates by a quarter point at its forthcoming meeting on July 25–26 by a month of positive inflation data.

In fact, at least one member of the Fed remained committed to the hawkish rhetoric that inflation is still too high.

After the CPI figures were released, Richmond Fed President Thomas Barkin gave a speech in Maryland where, without mentioning the CPI data explicitly, he stated that he still believed inflation has "been stubbornly persistent."

A carefully monitored version of the Personal Consumption Expenditures price index, which is also free of volatile food and energy costs, has been registered at approximately 4.6% since December, above the central bank's aim of 2% inflation.

Officials from the Fed have stated that they want consistent decreases in order to be confident that inflation is under check and headed in a sure direction towards target.

The latest data has been mixed, showing slowing overall job growth and still-strong wage increases that some officials fear will fuel future inflation as well as improved sentiment in recent small business surveys that show a resilient economy but also a rise in the percentage of owners planning price increases.

The calendar is also working in the Fed's favour; some of the months with the highest rates of inflation are being removed from calculations of yearly price rises, and recent shaky statistics on housing rentals are expected to be given more weight in the computations.

(Sources: investing.com, reuters.com)