WASHINGTON — Squeezed by painfully high prices for two years, America’s households have gained some much-needed relief with inflation reaching its lowest point since early 2021 — 3% in June compared with a year earlier — thanks in part to easing prices for gasoline, airline fares, used cars and groceries. Here’s what you need to know:
Inflation is easing
The inflation figure the government reported Wednesday was down sharply from a 4% annual rate in May, though still above the Federal Reserve’s 2% target. From May to June, overall prices rose 0.2%, up from just 0.1% in the previous month but still comparatively mild. The news was better than expected by analysts.
What it means for interest rates
The Fed is considered all but sure to boost its benchmark rate when it meets in two weeks. But with price increases slowing — or even falling outright — across a broad range of goods and services, many economists say they think the central bank could hold off on what had been expected to be another rate hike in September, should inflation continue to cool.
“It takes the second hike off the table, if that trend continues,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “They’re probably on hold for the rest of the year.”
The Fed has raised its benchmark rate by a substantial 5 percentage points since March 2022, the steepest pace of increases in four decades. Its expected increase this month will follow the central bank’s decision to pause its rate increases last month after 10 consecutive hikes.
Some economists have suggested that if inflation keeps slowing and the economy shows sufficient signs of cooling, the July increase could be the Fed’s last.
What it means for consumers
A sustained slowdown in inflation could bring meaningful relief to American households that have been squeezed by the price acceleration that began two years ago.
Used-car prices, among other items, have been falling. Automakers are finally producing more cars as supply shortages have abated. New-car prices, too, have begun to ease as a result.
Gas prices have fallen back to about $3.50 a gallon on average, nationally, down from a $5 peak last year. And grocery prices are rising more slowly, with some categories reversing previous spikes.
Still, the cost of services, like restaurant meals, car insurance, child care and dental services, continue to rise rapidly. Auto insurance, on average, now costs 17% more than it did a year ago.
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