Inflation heated up for a second straight month in June. According to the Bureau of Labor Statistics, the headline figure for the Consumer Price Index was at 2.7% year-over-year, up from 2.4% in May and higher than the expected 2.6% growth. On a monthly basis, prices rose 0.3%, as expected.
Additionally, the core CPI was at 2.9% year-over-year, up from 2.8% in May but lower than the expected 3.0% growth. On a monthly basis, core prices rose 0.2% which was lower than the expected 0.3% monthly increase.
Here is the introduction from the BLS summary, which leads with the seasonally adjusted monthly data:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent on a seasonally adjusted basis in June, after rising 0.1 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment.
The index for shelter rose 0.2 percent in June and was the primary factor in the all items monthly increase. The energy index rose 0.9 percent in June as the gasoline index increased 1.0 percent over the month. The index for food increased 0.3 percent as the index for food at home rose 0.3 percent and the index for food away from home rose 0.4 percent in June.
The index for all items less food and energy rose 0.2 percent in June, following a 0.1-percent increase in May. Indexes that increased over the month include household furnishings and operations, medical care, recreation, apparel, and personal care. The indexes for used cars and trucks, new vehicles, and airline fares were among the major indexes that decreased in June.
The all items index rose 2.7 percent for the 12 months ending June, after rising 2.4 percent over the 12 months ending May. The all items less food and energy index rose 2.9 percent over the last 12 months. The energy index decreased 0.8 percent for the 12 months ending June. The food index increased 3.0 percent over the last year.
The first chart is an overlay of headline CPI and core CPI (excludes Food and Energy) since the turn of the century. The highlighted two percent level is the Federal Reserve's target inflation rate. In June, prices accelerated from 2.35% in May to 2.67%. Meanwhile core prices accelerated from 2.79% in May to 2.93% in June. This is the highest level for both series since February.
The next chart shows both series since 1957, the year the government first began tracking core inflation. In recent years, we have seen some of the highest inflation rates since the second of the two recessions in the early 1980s. However, inflation has slowly made its way back down but has proven sticky. Core CPI is currently sitting at a level last seen in the early 1990s, while headline CPI is near levels seen in the 2017-18.
Consumer Price Index Components
The Bureau of Labor Statistics (BLS) divides all expenditures into eight categories and assigns a relative size to each, which is shown in the chart below. The BLS weighs these annually with the latest weighting taking place in December 2024.
Here is a table showing the annualized change in Headline and Core CPI, not seasonally adjusted, for each of the past six months. Also included are the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation. We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components. Some of us have higher transportation costs, others medical costs, etc. A conspicuous feature in the year-over-year table is the volatility in energy, significantly a result of gasoline prices, which is also reflected in Transportation.
Here is the same table as above with month-over-month numbers (not seasonally adjusted).
Note: For additional information on the component composition of the Consumer Price Index, see our Inside the Consumer Price Index.
Inflation: Fed's 2% Target
The Fed is on record as having a target rate of 2% for core inflation.. The Fed traditionally uses the PCE Price Index as their preferred inflation gauge however the Consumer Price Index is another common measure. Read our analysis on how these two inflationary measures stack up against each other.
The COVID-19 pandemic helped launch inflation into its highest levels since the 1980s. As a result, the Fed has been battling high inflation over the past few years with its monetary policy. Inflation has eased off of its 2022 highs, however the back half of 2024 has shown just how sticky it can be.
In their latest meeting, the Fed held rates steady at 4.25-4.50%, as expected. This marked the fourth straight meeting the Fed has left rates unchanged. The statement from the meeting revealed the Committee believes inflation remains "somewhat elevated" but that they are strongly committed to returning inflation to its 2% objective.
