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US inflation cools for third month in a row due to falling gasoline prices

US inflation cools for third month in a row due to falling gasoline prices
US inflation cools for third month in a row due to falling gasoline prices

Inflation in the US cooled for the third month in a row in June, a sign that the worst price increase in four decades is slowly fading and could soon lead to interest rate cuts by the US 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 fell 0.1 percent from May to June after remaining unchanged in the previous month, the government reported on Thursday. Measured against the previous month’s prices, they rose 3 percent in June, compared with 3.3 percent in May.

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

The latest inflation figures may convince Fed policymakers that inflation is heading back toward their 2% target. A brief spike in inflation earlier this year had led Fed officials to scale back their expectations for rate cuts, saying they would need to see several months of modest price increases to have enough confidence to cut their benchmark interest rate from its 23-year high.

If inflation remains low over the summer, many economists expect the Fed to begin cutting its benchmark interest rate in September.

But even as inflation eases, the cost of food, rent, health care and other essential goods remains much higher than before the pandemic – a source of public discontent and a potential threat to President Joe Biden’s re-election.

Excluding fluctuating food and energy costs, so-called core prices rose by just 0.1 percent from May to June, below the 0.2 percent increase in the previous month. Compared to the previous year, core prices rose by 3.3 percent in June, after 3.4 percent in May. Core prices are believed to provide a particularly powerful signal of where inflation is likely to go.

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On Wednesday, Fed Chairman Jerome Powell said there had been “significant progress” in moderating inflation toward the Fed’s 2 percent target, but warned that central bank policymakers would like to see more such data.

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