Fresh inflation data released this month showed consumer prices cooling by more than economists had forecast, driven largely by a sharp drop in energy costs — a welcome data point for the Trump administration as it continues to make the case that its economic policies are bringing prices under control.
The Consumer Price Index fell 0.4% month-over-month in June, pulling the year-over-year inflation rate down to 3.5% from 4.2% in May, with the decline driven by a sharp drop in energy prices and flat growth in core components. Gasoline prices were the biggest driver of the monthly decline, while core prices — which strip out food and energy — were unchanged for the month and up 2.6% over the past year.
A Mixed Labor Picture
The inflation news arrived alongside a more mixed jobs report. June payrolls rose by just 57,000, well below the 100,000 consensus forecast, with revisions stripping 74,000 jobs out of the prior two months’ totals. The unemployment rate nonetheless ticked down slightly to 4.2%, though economists note that’s partly a reflection of fewer people participating in the labor force rather than a surge in hiring.
Corporate earnings, meanwhile, have come in strong. Major banks reported better-than-expected results in the second quarter, boosted by strong trading and investment banking revenue, with analysts expecting S&P 500 earnings to grow by roughly 23% year-over-year — which would mark a second consecutive quarter of 20%-plus growth.
What It Means Going Forward
The cooling inflation numbers give the Federal Reserve more room to maneuver as it weighs interest rate policy at its meeting later this month. Administration officials have pointed to the falling energy prices and slowing inflation as validation of the president’s energy and trade policies, even as they acknowledge the labor market has room to strengthen further. Economists caution that further disinflation will hinge partly on whether the recent ceasefire in the Middle East holds, since renewed conflict could send energy prices back up.
This story is developing.
