US inflation weakened again and noticeably in June. Compared to the same month last year, consumer prices rose by 3.0 percent – but according to economists the pressure remains high.
Inflation in the US has fallen to its lowest level in more than two years due to falling energy prices. According to the US Department of Labor in Washington, consumer prices climbed only 3.0 percent in June compared to the previous year. This is the smallest increase since March 2021. In April they had increased by 4.0 percent.
Economists surveyed by the Reuters news agency had only expected a decline to 3.1 percent. On a monthly basis, prices rose by an average of 0.2 percent compared to May and were therefore also somewhat weaker than expected.
“Still far too much pressure in the boiler”
“The US inflation rate looks almost normal again,” said the chief economist at VP Bank, Thomas Gitzel. Viewed historically, inflation rates of three percent are nothing unusual. “Measured against the high of 9.1 percent measured a year ago, the three percent no longer seem alarmingly high,” said Gitzel.
However, economists also explain the lower inflation rate with a base effect in energy prices, which had risen extremely in the same period of the previous year. It is “therefore not to be expected that inflation will continue to fall at a comparable rate in the coming months,” says LBBW economist Elmar Völker. Bastian Hepperle from the Hauck Aufhäuser Lampe bank takes a similar view: “In terms of inflation, there is still far too much pressure in the boiler.” Due to the lower energy prices “steam could escape”; in July, however, the opposite effect could increase inflationary pressure again.
The fact that the dangers of inflation in the USA have not yet been averted is also shown by the development of the core rate, which does not include the volatile prices for energy and food. Although this rate fell from 5.3 to 4.8 percent, it remains comparatively high.
Fed interest rate summit probably not yet reached
The core rate is considered a good indicator of fundamental inflation trends and is therefore analyzed in detail by the US Federal Reserve. The latter recently massively tightened its monetary policy. The key interest rate range is currently 5.0 to 5.25 percent. In June, however, the monetary watchdogs took a break after ten increases in a row.
However, that should not be interpreted as a signal that the interest rate peak has already been reached, said Fed New York Branch Chairman John Williams. The Fed has indicated in its projections and communications that it still has some way to go to put monetary policy on a tightening enough stance to bring inflation back to 2 percent, he told the Financial Times.
The price pressure is still too high, commented the US central banker Thomas Barkin with regard to the two percent target for the inflation rate. The still dynamic job market is also an important aspect: “More jobs mean more income and thus increasing inflation risks,” emphasized expert Gitzel. That is precisely why the Fed will turn interest rates again at the end of July.