Some good news! Inflation cools down to 3% in reaching distance of Fed's 2% target

Inflation in the US has slowed to a 3 percent annual rate - its slowest pace in more than two years.

The latest Consumer Price Index released Wednesday by the Bureau of Labor Statistics showed that inflation grew by 0.2 percent in June - after increasing 0.1 percent in May. 

The 3 percent annual inflation rate is a sharp decrease from the 9.1 percent peak seen last June, and down from May's 4 percent increase. It is the lowest level since  March 2021 when when inflation was 2.6 percent.

Airline fares and used cars were among the biggest fallers in price over the last 12 months - decreasing by 18.9 percent and 5.2 percent respectively. Vehicle insurance, meanwhile, rose by a huge 16.9 percent year-on-year.

It is the most hopeful news since the Federal Reserve began trying to tame rapid price increases 16 months ago - with the target rate of 2 percent inflation within reaching distance.

However Fed officials have signaled that they are still likely to raise interest rates another quarter point to a 22-year-high at their July meeting later this month. In June, the Fed pressed pause on 10 consecutive rate rises - holding the benchmark rate steady between 5 and 5.25 percent as inflation began to ease. 

It is the 12th month in a row that annual inflation, measured by the CPI, has slowed - and it is slightly below economist predictions for a 3.1 percent increase.

So-called core consumer prices, which exclude volatile items such as food and energy and are deemed a better gauge of long-term trends, also cooled. 

For the 12 months ended in June, the core CPI rose 4.8 percent - a retreat from the 5.3 percent rate reported in May and lower than the 5 percent increase forecast by economists.

On a monthly basis, it ticked up by 0.2 percent in June - down from 0.4 percent in May. This is the smallest 1-month increase in that index since August 2021, suggesting underlying price pressures are gradually easing.

President Joe Biden hailed the inflation data as 'Bidenomics in action' and said it is 'new and encouraging evidence that inflation is falling while our economy remains strong,' according to a statement released by the White House. 

Slower inflation is unquestionably good news, because it is allowing consumer paychecks to stretch further and is inflicting less pain at the gas pump and in the grocery aisle

June's increase in inflation was driven mainly by shelter costs, which include rent, accounting for over 70 percent of the increase.

Prices for car insurance and recreation also rose. 

'Where inflation is proving sticky is in services - getting haircuts, getting your car repaired, buying car insurance,' Leo Feler, chief economist at Numerator, told the Wall Street Journal.

Breaking news. More to follow