US inflation slowed more than expected in June

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US inflation fell more than expected in June, the latest sign that the Federal Reserve’s interest rate hike is exerting pressure on prices.

Annual growth in the consumer price index slowed to 3 percent from 4 percent in May, according to economists surveyed by Refinitiv. This is the slowest rate of inflation since March 2021.

Prices rose 0.2 percent on a monthly basis in June, up from 0.1 percent the previous month, but below economists’ estimates. The annual figure was further helped by so-called base effects, as extremely large increases from June 2022 were left out of the calculation.

The “core” CPI declined marginally, down from 5.3 percent in June to an annual rate of 4.8 percent. Core prices, which reduce the volatile cost of food and energy, rose 0.2 percent month-on-month, compared with 0.1 percent in May.

The core inflation rate has been steadily inching closer to the Federal Reserve’s 2 percent target after peaking at more than 9 percent last June. However, core inflation has proved more sticky, raising expectations that the US central bank will need to raise interest rates further.

The Fed has raised its benchmark interest rate from near zero to a range of 5-5.25 percent in early 2022. To take stock of the impact of the previous hike, officials kept rates steady at their most recent policy meeting in June. But he has made it clear that he expects further growth before the end of the year.

Labor market data released last week also showed that the Fed’s aggressive rate hikes have started to slow the economy, slowing jobs growth. However, he also highlighted continuing inflationary pressures, with unemployment still near multi-decade lows and wages rising well above what is considered to be in line with the Fed’s target inflation rate.

Pricing in the futures market on Wednesday indicated a more than 90 percent chance the Fed would raise rates 0.25 percentage points at its next meeting in late July.