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Inflation has fallen to its lowest levels since March 2021

Inflation has falled to its lowest levels since March 2021. However, the Federal Reserve remains cautious.

TLDR: A drastic fall in inflation to the lowest levels since March 2021 sees a cooling economy with wages now outpacing prices. However, the Federal Reserve retains caution, awaiting consistent decreases in inflation rates, according to the Washington Post.

Bullet points:

  • Inflation sees a significant dip a year after soaring to a 40-year high. Prices rose 3 percent in June 2023, year-on-year, and 0.2 percent compared to May 2023, marking the smallest 12-month increase since March 2021.
  • Major categories like rent still pose challenges, but there are encouraging signs with declines in goods prices like used cars and meats, and a cooling off of categories like airfares and hotels.
  • Wages have grown faster than inflation for four straight months, with average hourly earnings outpacing inflation by 0.2 percent.
  • The Dow Jones Industrial Average, S&P 500 index, and the Nasdaq reacted positively to the news, showing an increase in their values.
  • Housing costs remain a major driver of inflation, with rents up 8.3 percent compared to the previous year. Policymakers are keenly watching core inflation, which rose 0.2 percent in June compared to May, the smallest one-month increase since August 2021.
  • The energy index, a major driver of inflation last summer, is down 16.7 percent for the 12 months ending June 2023.
  • The Federal Reserve retains vigilance, with varying momentum in different sources of inflation. The new inflation figures might push the Fed to project two more rate hikes by the end of the year.
  • The Biden administration applauds the latest inflation figures, citing the success of the “Bidenomics” plan.
  • Compared to other G-7 nations, the US boasts the lowest inflation readings. The job market also shows signs of steady growth.
  • The Federal Reserve manages to raise interest rates over 5 percent without causing a halt in the economy.
  • The housing market shows signs of improvement, and rents are starting to drop from pandemic highs. However, rent and housing costs still make up about a third of the basket of goods used to calculate the consumer price index.
  • Policymakers keep a keen eye on how families and businesses adapt to inflation. Behavioral changes can exacerbate the challenge of stabilizing the economy.