Consumer prices posted their biggest decline in more than six years during June, delivering a wave of relief to Houston households and businesses grappling with this year’s inflation surge. The Bureau of Labor Statistics reported Tuesday that the consumer price index fell a seasonally adjusted 0.4% for the month, bringing the annual inflation rate down to 3.5%.
The reading came in well below expectations. Economists surveyed by Dow Jones had anticipated a 0.2% monthly decline and an annual rate of 3.8%, following May’s 4.2% figure. The monthly drop was the largest since April 2020.
The energy index slumped 5.7% in June, its biggest monthly decline since April 2020, driven by decreases of more than 9% in both gasoline and fuel oil prices. However, energy costs remain 15.7% higher year-over-year, with gasoline up 26.7% annually, reflecting the ongoing impact of the U.S.-Iran conflict on global energy markets.
Core inflation, which excludes food and energy, was flat on the month, putting the 12-month rate at 2.6%, below the consensus forecast of 2.9%. Services costs, closely monitored by Federal Reserve policymakers, moderated significantly. Services excluding energy were flat, with shelter rising just 0.1% and transportation services declining 0.3%.
The report prompted traders to scale back expectations for near-term Fed tightening. The probability of a rate hike at the central bank’s July meeting fell to 17% from 42% a day earlier, according to CME’s FedWatch Tool. Markets continue to price in a 63% probability of a rate increase following the September meeting.
Fed Chairman Kevin Warsh struck a cautious tone. “There might be some that look at this morning’s data and say, ‘Oh, mission accomplished, everything is swell,'” Warsh said. “That is not my view.” Warsh, who took office in May, has made controlling inflation a centerpiece of his agenda.
For Houston consumers, the cooling inflation offers a reprieve, particularly at the gas pump. However, analysts warn the relief may be temporary as renewed hostilities with Iran threaten to push oil prices higher once again. Bank of America CEO Brian Moynihan said consumers have adjusted to high gas prices, noting that spending remains resilient and wage growth among lower-income households is catching up.
