US inflation falls to 3%, lowest level in more than 2 years, as price pressures ease

Jul 12, 2023, 6:46 AM | Updated: Sep 11, 2023, 11:41 am

Inflation, cost of living has been driven, in part, by the prices of groceries and other daily nece...

(Scott G. Winterton/Deseret News)

WASHINGTON (AP) — After two years of painfully high prices, inflation in the United States has reached its lowest point in more than two years — 3% in June compared with 12 months earlier — a sign that the Federal Reserve’s interest rate hikes have steadily slowed price increases across the economy.

The inflation figure the government reported Wednesday was down sharply from a 4% annual rate in May, though still above the Fed’s 2% target rate. Over the past 12 months, gas prices have dropped, grocery costs have risen more slowly and used cars have become less expensive.

From May to June, overall prices rose 0.2%, up from just 0.1% in the previous month but still comparatively mild.

At the same time, underlying inflation remains persistently high and a nagging concern for the Fed, which is all but certain to increase its key interest rate again when it meets in two weeks. The Fed has raised its benchmark rate by a substantial 5 percentage points since March 2022, the steepest pace of increases in four decades.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

WASHINGTON (AP) — U.S. inflation is expected to post its lowest level in more than two years in a highly anticipated report being released Wednesday — a slowdown that, if sustained, could lead the Federal Reserve to halt its interest rate hikes later this year.

The monthly report from the government will probably show that consumer prices rose just 3.1% in June from 12 months earlier, according to a survey of economists by the data provider FactSet. A figure that low would mark the mildest year-over-year increase since March 2021, when the current bout of painfully high inflation began as the economy roared out of the pandemic recession. And it would signal a sharp slowdown from the 4% annual rise in May.

On a month-to-month basis, though, economists have estimated that prices rose 0.3% from May to June, up from 0.1% the previous month. Gas prices are expected to have risen, with grocery prices unchanged. Economists have predicted that used-car prices fell from May to June after two months of steep increases.

The expected decline in overall inflation over the past 12 months would bring the figure much closer to the Fed’s 2% target and reflect the progress the central bank has made in slowing price acceleration. Consumer inflation reached a peak of 9.1% in June 2022. Since then, gas prices have tumbled, food-cost increases have slowed and the costs of some other goods, such as furniture, have declined.
Economists expect used-car prices to keep falling over the coming months. And even housing costs, which have risen significantly, have begun to cool, as apartment construction has reached a four-decade high.

Still, measures of underlying inflation could remain chronically high — well above the Fed’s target level through the end of this year, in the view of most economists. Excluding volatile food and energy costs, for example, economists have forecast that “core” prices rose 5% in June from 12 months earlier, down from 5.3% in May but still uncomfortably elevated. From May to June, core prices are thought to have risen by a still-high 0.3%.

The Fed is considered certain to raise its key short-term rate again when it meets in two weeks. It paused its hikes last month after 10 straight rate increases beginning in March 2022. And officials at the central bank have signaled that they could hike rates again when they next meet in September.
But 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.

“They’re going to want more than one or two months of decent inflation data before they’ll start to feel confident that inflation is really coming down and they don’t have to do much more,” said Alan Detmeister, an economist at UBS. “We think they’ll have it by the time they get around to the September meeting.”

When Fed officials meet in September, the government’s inflation reports for both July and August will have been released. Detmeister expects those reports to continue to show prices cooling.

Wholesale used-car prices have fallen steeply for months, a trend that should lead to lower retail prices, too. Automakers are finally producing more cars as supply shortages have abated. New-car prices, too, have begun to ease as a result.

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. Inflation spiked as consumers ramped up their spending on items like exercise bikes, standing desks and new patio furniture, fueled by three rounds of stimulus checks. The jump in consumer demand overwhelmed supply chains and ignited inflation.

Many economists have said that President Joe Biden’s stimulus package in March 2021 intensified the inflation surge. At the same time, though, inflation also jumped overseas, even in countries where much less stimulus was put in place. Russia’s invasion of Ukraine also caused a spike in energy and food prices globally.

Now, though, 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.
Egg prices, for example, have declined to a national average of $2.67 a dozen, down from a peak of $4.82 at the start of this year, according to government data. Egg costs had soared after avian flu decimated the nation’s chicken flocks. Despite the decline, they remain above the average pre-pandemic price of about $1.60. Milk and ground beef have eased from their peak prices but remain elevated.

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.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

Business + Economy

a utah child care provider and several children...

Amanda Dickson

Dickson: A look inside the child care crisis

You've heard about the child care crisis in Utah. Parents can't afford child care. Child care workers can't afford to live on what they make.

14 hours ago

Rural wildlife firefighters, "Hot Shots"...

Michael Camit

Utah is struggling to retain its rural ‘Hotshots’

Filling jobs of rural wildlife firefighters can be difficult due to the cost of living according to the Utah Division of Forestry, Fires and State Lands.

3 days ago

A car is filled at a gas pump in Sandy on Tuesday, March 19, 2024....

Adam Small

Experts predict record number of drivers, lower Memorial Day gas prices

Experts have predicted that 43.8 million people will travel this weekend. They could experience lower gas prices.

3 days ago

People skate at Millcreek Common in Millcreek on Monday, Dec. 5, 2022. The New Americans Internatio...

Eric Cabrera

New Americans International Market offers space for newly settled Americans to share culture and connect

The New Americans International Market at Millcreek Common is helping new refugees and immigrants connect with the community.

6 days ago

A customer checks prices while shopping at a grocery store in Wheeling, Ill., Friday, Jan. 19, 2024...

Curt Gresseth

Inflation eases but grocery store prices in Utah still stinging

Inflation eases slightly in April, but in Utah, consumers are still feeling the pinch of grocery-store prices.

7 days ago

FILE - A street sign is seen in front of the New York Stock Exchange June 14, 2022. The U.S. stock ...

Simone Seikaly

LISTEN: Utah analyst on stock market highs

Stock market investors are reportedly energized by a report showing inflation is cooling somewhat across the U.S.

8 days ago

Sponsored Articles

a doctor putting her hand on the chest of her patient...

Intermountain Health

Intermountain nurse-midwives launch new gynecology access clinic

An access clinic launched by Intermountain nurse-midwives provides women with comprehensive gynecology care.

Young couple hugging while a realtor in a suit hands them keys in a new home...

Utah Association of Realtors

Buying a home this spring? Avoid these 5 costly pitfalls

By avoiding these pitfalls when buying a home this spring, you can ensure your investment will be long-lasting and secure.

a person dressed up as a nordic viking in a dragon boat resembling the bear lake monster...

Bear Lake Convention and Visitors Bureau

The Legend of the Bear Lake Monster

The Bear Lake monster has captivated people in the region for centuries, with tales that range from the believable to the bizarre.


Live Nation Concerts

All the artists coming to Utah First Credit Union Amphitheatre (formerly USANA Amp) this summer

Summer concerts are more than just entertainment; they’re a celebration of life, love, and connection.

Mother and cute toddler child in a little fancy wooden cottage, reading a book, drinking tea and en...

Visit Bear Lake

How to find the best winter lodging in Bear Lake, Utah

Winter lodging in Bear Lake can be more limited than in the summer, but with some careful planning you can easily book your next winter trip.

Happy family in winter clothing at the ski resort, winter time, watching at mountains in front of t...

Visit Bear Lake

Ski more for less: Affordable ski resorts near Bear Lake, Utah

Plan your perfect ski getaway in Bear Lake this winter, with pristine slopes, affordable tickets, and breathtaking scenery.

US inflation falls to 3%, lowest level in more than 2 years, as price pressures ease