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Inflation declined in June, but a Fed rate increase is still expected.

The Consumer Price Index (CPI) for June was released by the Labor Department at 8:30 EDT, which is the most recent indicator of inflation. Inflation has decreased to its lowest monthly gain since August 2021, according to the data. In May, the Consumer Price Index increased by 0.1%. Last month, it increased by 0.2%. 70% of the CPI's increase last month came from rises in the shelter category, which accounted for the vast bulk of consumer price increases. Additionally, there were increases in fuel prices and motor insurance, which both rose 1.0%. However, the price of used vehicles and trucks has significantly dropped.

The Consumer Price Index for All Urban Consumers (CPI-U) grew 0.2 percent on a seasonally adjusted basis in June after rising 0.1 percent in May, according to a news release from the Bureau of Labor Statistics. Before seasonal adjustment, the all items index rose 3.0 percent over the previous 12 months.

Core inflation decreased from 5.3% in May to 4.8% in the previous month. Given that the Federal Reserve thinks the core rate is the strongest indicator of inflationary trends, this reduction is significant. Even with last month's fall, the report shows that both headline and core inflation remain problematic as each month delivers greater prices for consumers generally.

Core inflation, at 4.8%, is still more than double the Fed's target of 2%.

This indicates that there is still a very strong likelihood that the Federal Reserve will raise interest rates by 4% at the next FOMC meeting at the end of this month. The probability of a 14% rate hike being enacted on July 26 is 92.4%, according to the CME's FedWatch tool, down slightly from yesterday's prediction of 93% and 90.5% from one week ago. However, there is only a 12.9% chance that the Fed will raise rates again, in July and in September, at the FOMC meetings.

The most important conclusion to be drawn from today's news is that inflation is dropping given that it is just about half as high as it was last year, when it was 9.1%. The Federal Reserve has decided to raise interest rates twice this year despite the fact that inflation is still running at a pace that is unlikely to weaken its resolve.

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