Broad cooling in inflation bolsters case for Fed rate cuts

US inflation cooled broadly in June, a further confidence boost for Federal Reserve officials that they can cut interest rates soon.

The so-called core consumer price index — which excludes food and energy costs — climbed 0.1% from May, the smallest advance since August 2021, Bureau of Labor Statistics figures showed. The year-over-year measure rose 3.3%, also the slowest pace in more than three years, according to data out Thursday.

Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure fell 0.1% from the prior month — the first decline since the onset of the pandemic, dragged down by cheaper gasoline — and 3% from a year ago.

The figures add to evidence that inflation has resumed its downward trend after a flare up at the start of the year, while broader economic activity appears to be slowing. In the wake of a report last week that showed a third straight month of rising unemployment, the data should keep the Federal Reserve on a path toward cutting interest rates later this year.

Chair Jerome Powell in testimony before lawmakers this week avoided signaling the timing of likely rate cuts and insisted policy moves will be guided by incoming data. After the CPI report, traders continued to see the central bank lowering borrowing costs in September as most likely, while stock futures and Treasuries both rallied. Policymakers will also meet later this month.

While the figures are reported to one decimal point by the BLS, officials have been increasingly drawing the numbers out further to get a more comprehensive picture of the direction inflation. On a three-decimal basis, core CPI rose 0.065%.