Inflation cooled in June according to the latest data from the Bureau of Economic Analysis (BEA), meeting economists’ expectations for the month. However, the trend may not continue as the Iranian conflict persists.
The Personal Consumption Expenditures (PCE) price index slipped 0.1% month-over-month in June, a reversal of the 0.7% jump seen in May. This was also the first month-over-month decrease observed in six years.
Annual inflation clocked in at 3.7%, a two-month low and meeting expectations from economists. This was also down from the 4.1% peak seen in May—characterized at the time by Navy Federal Credit Union Chief Economist Heather Long as the “highest inflation in three years,” pointing the finger directly toward “the war in Iran (and its) impact.”
A key shift this month was in gasoline and energy inflation, which fell 9.2% month-over-month. This measure has been elevated since February, when the Iran war began, seeing its highest month-over-month leap in March at 20.9%.
A ceasefire deal was on the table to bring said Iran war to an end during the month of June, which assisted the easing of inflation. The deal has now been backtracked, however, and the conflict has resumed, not providing much hope for inflation in the coming months.
Housing inflation is also still up by 0.2% month-over-month, but this was a smaller growth than the 0.3% increase in May and the 0.5% increase in April.
The core PCE price index (excluding food and energy) grew 0.1% month-over-month, a smaller increase than the 0.3% seen last month. Annual core inflation landed at 3.3%, down from 3.4% last month.
Notably, the PCE index recently had what was described as an overhaul, and prior to this report, expectations were already set for core inflation to fall due to the changes in data measurements.
The BEA changed how it measures prices in portfolio-management fees, computer software and legal services, which directly influence the core PCE. The plans had long been in the works as reports say Wall Street analysts long recognized issues in the data and felt changes were overdue.
These changes were expected to cause the core PCE index to fall an estimated reduction 0.2 to 0.3 percentage points, placing annual core inflation at 3.1% to 3.2%. The index still ended up exceeding this expectation in the end, however.
