Global Economy Briefs

June CPI Shows Progress on Inflation

July 12, 2023

The June Consumer Price Index (CPI) showed inflation rose 3.0 percent from a year earlier, sharply lower than the recent peak of 9.1 percent and down from 4.0 percent in May. Meanwhile, core CPI, which excludes volatile food and energy prices, rose 4.8 percent in June from a year earlier, the slowest pace since October 2021 and down from 5.3 percent in May.

Progress in food and energy prices is helping to bring down topline CPI in year-over-year terms. Trends in restaurant and medical prices are also helping. While rent prices remain a big contributor to overall inflation, this driver should begin to dissipate over the next few months. Prices for used cars and airline fare fell sharply, while prices for car insurance and recreation rose.

In month-over-month terms, topline CPI accelerated to 0.2 percent, vs. 0.1 percent the month prior. According to the BLS, the index for shelter accounted for 70 percent of this increase, followed by increases in the index for motor vehicle insurance. The food index rose by just 0.1 percent for the month and the energy index rose 0.6 percent. Core CPI rose 0.2 percent month-over-month in June, vs. 0.4 percent in May.

While CPI came in below expectations in June, inflation remains elevated and we expect the Fed to hike rates by 25 basis points in July and perhaps another 25 basis points at some point in Q3.