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Inflation subsides as incomes more than keep up with rising cost of living, government data says

The U.S. annual inflation rate dropped to 3% in June as wages were up 3.6% from a year ago.
A customer looks at a receipt while shopping at a grocery store.
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The U.S. consumer price index, the government’s top measure for inflation, decreased 0.1% in June compared to May. The price of goods and services increased by 3% in the 12-month period ending in June. The new inflation data was released Thursday by the government's Bureau of Labor Statistics.

Last month marked the lowest annual inflation rate measured by the BLS since last June as the annual inflation rate has not dropped below 3% since March 2021. June also marked the second consecutive month that prices for goods and services did not increase.

After dropping to 3% in June 2023 following a high of over 9% in 2022, the annual inflation rate peaked at 3.7% in August 2023.

Historically, over the last decade and over the last 20 years, annual inflation has averaged 3.2%.

The consumer price index weighs the costs of goods based on their importance. Items like food, shelter and energy tend to be weighted more heavily.

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The good news for consumers is that inflation for food purchased at grocery stores is low. In the 12 months ending in June, food meant to be consumed at home was 1.1% higher. Just a few years ago, annual food inflation topped 10%.

Food meant to be consumed outside the home, such as at restaurants, is still up 4.1% but has steadily fallen in the last year as establishments such as McDonald's, Wendy's and Taco Bell have promoted value meals.

The government data shows energy costs being 1% higher than a year ago, while shelter costs are up 5.2%.

With inflation failing to drop below 3%, the Federal Reserve has continued to keep interest rates at a five-decade high since late 2023. The Federal Reserve has stated its goal is to get annual inflation to 2%. Higher interest rates are meant to lower inflation.

The next potential change to U.S. interest rates could come on July 31.

Wages are outpacing inflation. Average weekly wages were $1,201 in June, up from $1,159 a year ago, a 3.6% increase.