US inflation broadly Cools.

 US inflation cooled broadly in June, driven by a long-awaited slowdown in housing costs. This provides confidence for Federal Reserve (Fed) officials to cut interest rates. The so-called core consumer price index (CPI) — which excludes food and energy costs — climbed 0.1% from May, the smallest advance since August 2021, Bureau of Labor Statistics figures showed. The year-over-year measure rose 3.3%, also the slowest pace in more than three years, according to data out Thursday.

Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure fell 0.1% from the prior month — the first decline since the onset of the pandemic, dragged down by cheaper gasoline — and 3% from a year ago.

In addition to slower rental inflation, the costs of other services like airfares, hotel stays, and inpatient hospital care all declined from a month earlier. For goods, new and used vehicle prices led broader decreases in core goods.

The figures add to evidence that inflation has resumed its downward trend after a flare up at the start of the year, while broader economic activity appears to be slowing. And unemployment rose for the third straight month. That should be good reason also to cut interest rates sooner than later.

Meanwhile, a sustained decline in the price of goods over most of 2023 has largely been providing some relief to consumers. So-called core goods prices, which exclude food and energy commodities, fell in June for a fourth month.

Prices of new vehicles declined for a sixth month, and several apparel categories dropped as well. The cost of household furnishings has fallen nearly every month for the past year. There are also signs that consumers are growing increasingly sensitive to higher prices. 

A separate report, combining the inflation data with figures on wages published last week, showed real earnings growth has been positive for 2023.

So, what does it mean for us in Malaysia? If the Fed Fund rate is reduced, then the differential in nominal interest rates between Malaysia and U.S. will narrow and prospects for a Ringgit appreciation becomes real. Imported prices will drop and we will have a better trade surplus, hopefully. Food prices could stabilise or may reduce with an improved ringgit.  (Our annual food import alone is RM70-75 billion) That’s good news for many sectors and a fillip for the economy.

Reference:

US inflation broadly cools, bolstering case for Fed rate cut, Molly Smith / Bloomberg

11 Jul 2024