A gas pumper at a BP gas station in Brooklyn, New York, on June 12, 2023. Annual inflation fell to 3% in June, its lowest level in more than two years, and there are hopes that it might. decrease further.
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Image of Michael M. Santiago/Getty
A gas pumper at a BP gas station in Brooklyn, New York, on June 12, 2023. Annual inflation fell to 3% in June, its lowest level in more than two years, and there are hopes that it might. decrease further.
Image of Michael M. Santiago/Getty
Inflation has tormented Americans for more than two years — and it’s finally losing its strength.
The Department of Labor reported on Wednesday that June consumer price up just 3% from a year ago — the smallest annual increase since March 2021. Furthermore, forecasters suggest that inflation could fall further in the coming months.
But two years of high inflation have left scars, and people are adjusting their habits, possibly in lasting ways.
Here are five things to know about the current state of inflation.
Inflation has dropped sharply from last year’s peak
It was a completely different picture this time last year. By that time, inflation had hit 9%, partly due to record-high gasoline prices following Russia’s invasion of Ukraine.
Since then, gas prices have fallen by more than 26%. And that has a big impact on the daily lives of many Americans, especially commuters like Kate Blacker from Jersey City, NJ, who commute about an hour a day at a community college.
“I’m a lot less worried now than I was six months, eight months ago, when prices went up so fast and I didn’t know when it would cool down,” Blacker said.
Grocery prices also leveled off last month, a welcome relief to consumers’ budgets.
And in another positive mid-summer development, airfares and hotel room rates fell in June, despite a strong increase in travel demand.
Inflation is likely to continue falling
Here’s the good news: Even lower inflation rates are on the way. Rent was the main driver of inflation in June, but people signing new apartment leases this summer are seeing rent increases less than a year ago.
That takes time to show up in the government’s inflation tally, but the text is already on the wall.
Likewise, used car wholesale prices have been falling for several months, so those savings will continue to generate lower prices for dealer shipments.
Omair Sharif, head of forecasting firm Inflation Insights, believes the next few months will be marked by a slight increase in the cost of living, like in June.
“This is one of the top advantages of the deflationary summer,” says Sharif.
Companies may no longer be able to cover their profits
Economist Lael Brainard says some companies have increased their profit margins over the past two years of strong inflation — a trend that could soon be reversed.
Brainard served as Vice Chairman of the Federal Reserve Board before moving to the White House in February to direct the National Economic Council. She points to what she calls a “price-price spiral,” where companies see their costs go up, then raise their own prices even further.
“It’s important for corporations to continue to reduce their spreads after having raised them to unusually high levels over the past two years,” he said. Brainard to the Economic Club of New York Wednesday.
Brainard said that higher price increases “will be reduced if consumers are more price-sensitive and companies have to compete more fiercely.”
More people are becoming more careful shoppers
Two years of high inflation have left a mark on how people spend money, and some of those changes could be long-lasting.
For example, Blacker postponed a trip to Los Angeles this summer, hoping to find cheaper airfare in the fall. She also canceled her gym membership and says she and her partner are now thinking more carefully about their food purchases than they used to.
“We didn’t really care much about grocery prices before,” Blacker said. “It’s like, ‘Oh, let’s find a recipe and just take whatever we need.'”
With restaurant prices still climbing, she also eats out less often.
“It’s something that we have to be much more conscious of in terms of our budget for that,” Blacker said.
The Federal Reserve is not ready to declare victory
Data showing inflation falling on Wednesday will likely be welcomed as good news to the country’s inflation fighters, but the battle may not be over yet.
The Fed has raised interest rates aggressively over the past 16 months in an attempt to curb demand and control prices.
Although the central bank has chosen keep the exchange rate stable At the last meeting in June, forecasters expect at least one rate hike by a quarter of a point when Fed policymakers meet in two weeks.
However, if inflation continues to trend downward, it may just be the last rise in this cycle.
