US Inflation cools for third straight month as gas prices fell

US inflation rates have dropped to 3%, the lowest in four decades, signaling a possible end to the price spike.

Inflation in the United States cooled in June for a third straight month, a sign that the worst price spike in four decades is steadily fading and may soon usher in interest rate cuts by the Federal Reserve.

The Federal Reserve may soon cut interest rates as inflation returns to its 2% target, according to the latest consumer price index. (AP Photo/Patrick Semansky, File) (AP)

Consumer prices declined 0.1% from May to June after having remained flat the previous month, the government reported Thursday. Measured from 12 months earlier, prices were up 3% in June, down from 3.3% in May.

Fed on track to cut interest rates as inflation returns to target

The latest inflation readings could help convince the Fed’s policymakers that inflation is returning to its 2% target. A brief pickup in inflation early this year had caused Fed officials to scale back their expectations for interest rate cuts. They responded by saying they would need to see several months of mild price increases to feel confident enough enough to cut their key rate from its 23-year high.

Should inflation remain low through the summer, many economists expect the Fed to begin cutting its benchmark rate in September.

Even as inflation slows, though, the costs of food, rent, health care and other necessities remain much higher than they were before the pandemic — a source of public discontent and a potential threat to President Joe Biden’s re-election bid.

Excluding volatile food and energy costs, so-called core prices climbed just 0.1% from May to June, below the 0.2% increase in the previous month. Measured from a year ago, core prices rose 3.3% in June, down from 3.4% May. Core prices are thought to provide a particularly telling signal of where inflation is likely headed.

On Wednesday, Chair Jerome Powell said there had been “considerable progress” in slowing inflation to the Fed’s 2% target. At the same time, he cautioned that the central bank’s policymakers want to see further such data.