Inflation Research Brief: July 2024

June Inflation Gives More Runway to Fed for Rate Cuts

Falling commodity prices reflect cooling economy. While pricing pressures remain above target 27 months into the Federal Reserve's current monetary tightening cycle, meaningful relief is beginning to show. Annual growth in the commodities less food and energy index — which captures pricing changes for non-necessity items such as recreation, vehicles and apparel — has been in negative territory for six consecutive months and reached a near 20-year-low at -1.8 percent in June. Elevated costs for essentials such as housing services, medical care and vehicle insurance are constraining household budgets and limiting spending on discretionary items. These changes in consumers' spending habits helped lower headline CPI inflation down to 3.0 percent year over year in June, with a normalizing job market likely to help sustain a downward trend in the near term.

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