Core Gained 0.1%

• Topline CPI fell by 0.1% in June 2024 in seasonally-adjusted terms 

• Core CPI, less Food & Energy, rises at its weakest pace since January 2021, up 0.1% in June 2024

• Energy prices posted a second consecutive monthly decline in June 2024, falling by 2.0% for the month 

• Only the Food Away from Home significantly exceeded the Fed’s 2.0% target pace of gains among major categories, up 5.1% on an annualized basis for June 2024

Consumer Price Index (CPI) inflation came in below PNC’s expectations for June 2024 for both the Topline and Core measures. Topline CPI inflation fell by 0.1% for the month and Core CPI was only +0.1%, the latter translating to a 0.8% annualized pace. The June 2024 inflation numbers cement hopes that inflation has re-established the downward trend that had been enjoyed throughout the second half of 2023 but was disrupted in the opening months of this year. PNC’s forecast of two 25 basis point rate cuts from the Fed this year is shored up well by the June 2024 CPI results.

Core CPI, which excludes volatile food and energy inputs and aligns with the Federal Reserve’s preferred, policy-setting metric, rose by only 0.06% in June 2024 versus the month prior. This is the weakest monthly rise in the Core CPI measure since January 2021 (+0.03%). This result represents the third consecutive monthly deceleration in the pace of Core CPI inflation, and the data now show two months in a row of annualized gains at or below the Fed’s goal of an average of 2.0%. Combining the slowdown in Core CPI inflation with slowing but still robust hiring in the U.S. economy will create optimism that the Fed has what it needs to begin signaling that lower interest rates are a realistic expectation in the second half of this year.

Energy prices played a large part in Topline CPI’s decline for June 2024. Gasoline prices alone fell by 3.8% for the month, sparking a decline of 2.0% in the overall Energy CPI category. The Energy CPI sub-index is now 0.5% below December 2023 levels. Although energy prices are intentionally disregarded from the Fed’s preferred monetary policy targeting metric, households do not have the luxury of ignoring higher energy costs. Receding energy costs are no doubt providing welcome relief to household budgets that have been worn thin by everything from food and housing necessities to discretionary spending in recreational categories. Consumer spending in the U.S. economy should slow in the second half of this year alongside hiring trends, but weaker inflationary pressure in necessities such as Energy will make that pullback more palatable as households reallocate their spending perspectives.

The June 2024 CPI result brings a September 2024 Fed Funds rate cut into the picture. Commentary from Fed officials should soon begin leaning toward optimism that their goal of an average 2.0% pace of consumer price growth is attainable, as opposed to recent rhetoric that has been ever wary of risks and pitfalls along the road ahead. And if a few more months’ worth of inflation’s current downward trend can be secured, actions on interest rates will surely follow that rosier talk.