INFLATION WATCH out, RATE CUT watch in?

After a drop in the rate of inflation in May and evidence of the economy softening in recent weeks, many were looking at Thursday's update of the Consumer Price Index to see if US central bankers would be given more reasons to loosen their tight monetary policy.

They sure did.

Good news in the June inflation report.

Inflation actually DECLINED -0.1% in June. That's the first decrease since the pandemic month of May 2020.

-Gas prices declined in June
-Electricity prices declined in June
-Rent had its smallest monthly increase (0.2%) since August 2021 pic.twitter.com/gNezovrMQu

— Heather Long (@byHeatherLong) July 11, 2024

And if you dig into the actual CPI report, there's good news all around. The "core" inflation rate also moderated, transportation prices dropped, and we even saw a long-awaited moderation in rent prices in this CPI report.

The index for all items less food and energy rose 0.1 percent in June, the smallest increase in this index since August 2021. The shelter index increased 0.2 percent in June. The index for rent rose 0.3 percent over the month, as did the index for owners’ equivalent rent; these were also the smallest increases in these indexes since August 2021. The lodging away from home index decreased 2.0 percent in June, after falling 0.1 percent in May….

The index for airline fares fell 5.0 percent in June, following a 3.6-percent decrease in May. Over the month, the used cars and trucks index fell 1.5 percent, the communication index decreased 0.2 percent, and the new vehicles index declined 0.2 percent.

Prices for core services ex. housing fell 0.1%, their lowest monthly read since August 2021. On a yearly basis, core services ex. housing inflation was 4.6%, down from recent months, although still elevated relative to its pre-pandemic pace of 2.2%. 11/

— Council of Economic Advisers (@WhiteHouseCEA) July 11, 2024

The drop in prices last month also means that real wages had a solid rise for June, more than reversing the declines we saw earlier in the year. Inflation-adjusted wages are now at their highest level since the end of 2021, a time when many low-wage food service and retail jobs had yet to return from their eradication during the COVID pandemic (which skewed average hourly wages higher in 2020 and 2021).

Inflation-adjusted wages are also now more than 1% ahead of where we were in Feb 2020, right before the pandemic broke out (aka the time that Donald Trump claims was the “greatest economy ever”).

Not a bad spot to be in. And then on Friday, we saw producers dealt with slightly higher prices in June, but nothing that is worth pancking over.

US June producer price inflation +0.2%mom/2.6%yoy, up from 2.4%
Core PPI +0.4%mom/3%yoy, up from 2.6%
Both a bit higher than expected.
The CPI and PPI point to core PCE inflation for June coming in around 0.2%mom or unchanged at 2.6%yoy
(EvercoreISI chart) pic.twitter.com/YR83Ng8sL6

— Shane Oliver (@ShaneOliverAMP) July 12, 2024

But that increase was largely driven by business-to-business sales and services related to machinery and information technology. In fact, producer-level prices for foods aznd energy continued to fall in June.

Wall Street traders took those two inflation reports, and ran with it on Friday.

* Dow hits a fresh all-time intraday high — topping 40,000 for the first time since 5/20.

⁦@CNBC⁩ $DJIA pic.twitter.com/CSEFhAUUfl

— Carl Quintanilla (@carlquintanilla) July 12, 2024

I know the "experts" are all forecasting a September rate cut, but there's zero reason for the Fed not to cut at their next meeting in 2 1/2 weeks. With evidence of a slowing consumer (and watch to see if that continues in next week's retail sales report), and slowing home construction, people have had enougb of interest rates that punish borrowers with Fed Funds rates that are double the rate of inflation.

And it also wouldn't be a bad time for President Biden and the Dems in DC to start laying some pressure down on the central bankers to point people's rightful frustration in the right direction. After all, then-President Trump did the same thing from a much lower interest rate environment 5 years ago.