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What the latest inflation numbers mean for you

Inflation is still higher than ideal levels, but it hit its lowest rate in two years.

Cars in an urban gas station.
Gas prices are seen at a Mobil gas station on June 12, 2023, in the Flatbush neighborhood in the Brooklyn borough of New York City. 
Michael M. Santiago/Getty Images
Li Zhou is a politics reporter at Vox, where she covers Congress and elections. Previously, she was a tech policy reporter at Politico and an editorial fellow at the Atlantic.

Wednesday’s Consumer Price Index (CPI) report had some promising news for US households: It shows that inflation remains above ideal levels but is slowing, suggesting price increases are easing across certain industries.

According to the report, which compares the cost of goods for urban consumers — like food and housing — over time, overall CPI was up 0.2 percent in June relative to May, and 3 percent compared to June 2022. That’s the lowest the annual rate of inflation has been in months, and represents a steep decline from the annual rate last June, when it was at 9.1 percent.

Core inflation (which takes the same goods as CPI into account but removes food and energy prices due to their volatility) remains slightly higher, however, at 4.8 percent year over year. Still, that’s the lowest core inflation has been since October 2021.

“Inflation is throttling back, particularly for staples such as gas [and] food, and this should continue in coming months,” Moody’s chief economist Mark Zandi told Vox. “The inflationary fallout from the pandemic and Russian war continues to fade away as these supply shocks are increasingly in the rearview mirror.”

Economists don’t expect the CPI report to halt the Fed’s interest rate increases just yet, with officials poised to make another rate hike later this summer as they work to get inflation down to 2 percent. The CPI report, though, is among the recent developments that point favorably to the US skirting a recession and potentially more aggressive rate hikes moving forward.

Experts note that the economy hasn’t quite reached a “soft landing” — or state of low inflation that also avoids a recession — but that the latest data indicates the Fed’s actions have had an effect.

“It will surely feel uncomfortable at times in the next year or so, so a soft landing doesn’t describe it, but perhaps a slowcession: not a recession, but an economy not going anywhere fast,” says Zandi.

What does this mean for prices?

The report indicated that prices in certain areas, like energy and used cars, were going down on an annual basis, while those in other areas — like housing — continued to persist at higher levels. Economists have noted, however, that rent prices captured in the CPI, in particular, tend to lag price decreases observed in the market.

Gas prices have seen a significant decline year over year, though they increased slightly compared to the previous month. Grocery prices, meanwhile, have seen an uptick year over year, but some items, like eggs and dairy, have declined compared to prior months. It’s primarily these decreases that drove the lower CPI number, and both should provide consumers with some relief on these particular costs.

Housing costs, including rent, however, have increased annually and monthly, and continue to make up a decent share of inflation, the report notes. “Economists expect rent increases to ease substantially, based on new leases, but that shift has been slow to filter through to existing leases,” USA Today reports.

“Energy prices have definitely come down a lot in absolute terms over the past year,” the Economic Policy Institute’s Josh Bivens told Vox. “Grocery prices have fallen in absolute terms — i.e., not just slower inflation, actual price declines — since March.” Bivens cautioned that it’s not certain that these prices will keep dropping.

Other wins for consumers in the report include falling airfare and used car prices. However, services, such as haircuts and home repairs, are continuing to see annual and monthly price increases due to high labor costs.

What does this mean for interest rates?

At this point, the expectation is that the Fed is still going to move ahead with an interest rate hike in the coming months, bringing rates to a range of 5.25–5.5 percent. While a lower rate of inflation suggests that its increases are working, inflation is still not at the 2 percent benchmark the Fed has long set for itself. Additionally, the Fed has focused heavily on core inflation, which remains higher than inflation overall. And though Wednesday’s report was positive, further Fed action could attempt to continue this trajectory.

“Today’s CPI data will not forestall another Fed rate hike when policymakers meet at the end of the month,” Zandi told Vox. “But the favorable inflation and job statistics suggest the Fed should be close to ending its rate hikes.”

Another interest rate increase when the Fed meets on July 26 will mean that rates on mortgage and credit card payments will continue to be more costly, which could cool housing markets and force consumers to hold off on big purchases.

If inflation continues to wane, agency officials may consider pausing additional rate increases after this one, though.

What does this say about the state of the economy overall?

Overall, the report is good news for the economy.

“The quickly moderating inflation and prospects that the Fed is nearly finished raising rates increases the likelihood the economy will skirt a recession,” says Zandi. The next actions on rate hikes are especially key because they are aimed at depressing consumer spending and demand without completely damaging it. If spending and demand were to decrease too much, that could lead to the economy contracting further, triggering a recession. If the Fed decides to pause these hikes, it’s a sign that officials believe inflation has stabilized.

Beyond inflation slowing, the economy has continued to see strong unemployment rates. A June jobs report found that the overall unemployment rate was at 3.6 percent, which is near the lowest it’s been in years.