US inflation cooled sharply in June, boosting expectations that the Federal Reserve could move closer to cutting interest rates.
Annual inflation fell to 3.5 per cent, down from 4.2 per cent in May, while monthly inflation dropped to -0.4 per cent after rising 0.5 per cent the previous month.
Core inflation, which excludes volatile food and energy prices, also eased. The annual rate fell to 2.6 per cent from 2.9 per cent, while monthly core inflation was unchanged at 0 per cent, down from 0.2 per cent in May.
The figures suggest price pressures in the US economy are continuing to weaken, giving the Federal Reserve more room to consider interest rate cuts.
Markets will now watch closely for further evidence that inflation is moving sustainably towards the Fed’s 2 per cent target.
The slowdown offers relief for households and businesses facing years of higher borrowing costs and rising prices.
Isaac Stell, Investment Manager at Wealth Club, said: “US monthly inflation surprised to the downside in June with the largest 1-month decrease in the headline rate since the depths of the Covid Pandemic in April 2020.
“The biggest contributor to the fall in inflation came from the energy index which fell 5.7 percent month-on-month following a sharp rise in three prior months. The decline in the oil price tracked the optimism of a potential peace deal touted during June followed by the issuance of a memorandum of understanding between the US and Iran.
“The price of a barrel of oil subsequently fell from $94 at the beginning of the month down to $73, offering some relief to consumers at the pump.
“These latest figures, although very positive, are backwards looking. In the last few days alone, Trump has declared the war is back on with Iran and the oil prices have reacted accordingly with the price of Brent Crude rising again to $86. Prior to the release of todays inflation figures, markets were pricing in a 50% chance of a rate hike at the Fed’s next meeting in July, that now looks less likely. The Fed will be cognizant however of the evolving geo-political landscape and a rate hike cannot be assumed to be completely off the cards.”
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