The latest inflation figures from the U.S. Bureau of Labor Statistics (BLS) show the Consumer Price Index (CPI) rose just 3.0 percent over the last 12 months ending in June, a far cry from last June when the rate exceeded 9.0 percent (Figure 1). It is the smallest 12-month increase since March 2021. Deflation in energy prices is the primary reason. The BLS energy index is down 16.7 percent over the previous 12 months, gasoline prices are down 26 percent, and fuel oil prices are down 37 percent. Prices for shelter, up 8 percent, automobile insurance, up 17 percent, and new vehicles, up 4 percent, offset the declines in energy prices.
FIGURE 1. CONSUMER PRICE INDEX (CPI), 12-MONTH PERCENTAGE CHANGE
Source: U.S. Bureau of Labor Statistics
Inflation in food prices continues, but also at a slower pace compared to a year ago. Figure 2 shows the mid-year inflation rates for several food categories over the first half of this year the first half of 2022, and the historical average for the same period between 2002-2021. Food prices rose 4.8 percent during the first six months of this year compared to 8.2 percent last year, a 41 percent decrease. But the rate is still almost three times higher than the 20-year average, 1.6 percent. Egg prices have risen the most this year, up 13.7 percent, because of an outbreak of highly pathogenic avian influenza (HPAI). Fats and oils, up 8.7 percent, and cereals and bakery, up 8 percent, also saw significant increases. In contrast, prices for meats only rose 0.4 percent, less than the 20-year average. Sugar and sweets are the only category experiencing higher inflation this year compared to last. All other food categories have seen price increases slow.
FIGURE 2. MID-YEAR INFLATION FOR FOOD
Source: USDA Economic Research Service using data from the U.S. Bureau of Labor Statistics
With inflation slowing, the Federal Reserve might be on the verge of achieving the so-called “soft landing” for the economy—reducing inflation without causing a recession—which many economists thought impossible. Last week, the Federal Reserve’s Open Market Committee, the monetary policy-making group, raised the primary interest rate twenty-five basis points in another thrust at slaying inflation. Many prognosticators believe it will be the last rate hike in the near future. Unemployment remains at historically low levels, wages continue to climb, consumer confidence is building, and the real gross domestic product grew 2.4 percent in the second quarter. Signs the U.S. economy could be moving beyond the pandemic-induced struggles seen in the past few years.