What happened: The Consumer Price Index (CPI) rose 0.2% in June after increasing 0.1% in May. Core CPI rose 0.2% month-over-month compared to 0.4% in May. 

What it means: Annual price growth continues to slow. June marked the smallest 12-month increase since the period ending March 2021. Treasury yields, which mortgage rates tend to follow, fell on the news. 

What Zillow Senior Economist Orphe Divounguy thinks: Today’s report was good news on the inflation front. The pace of consumer price increases is slowing. And while inflation remains high, and shelter costs are still the largest contributor to the core CPI monthly gain, rent inflation is ticking down.

Annual increases in rent of primary residence and owners’ equivalent rent of residences continue to edge down. Annual growth of the Zillow Observed Rent Index (or ZORI) – a measure of market rent – has fallen to 4.1% from its 16% high in February 2022. While this is welcomed news to renters struggling to afford rent, it also means that CPI Rent – and core CPI overall – should moderate further as the year progresses.

With housing inflation expected to continue to fall, a decline in core non-housing services inflation is another step in the right direction. Further disinflation in the coming months should help support more,  albeit modest, downward movements in Treasury yields, which mortgage rates tend to follow. 

Numbers to know: 

• The Consumer Price Index (CPI) increased 0.2% in June after increasing 0.1% in May. Consumer prices were 3% higher when compared to a year ago down from 4% in May.
• Core CPI increased 0.2% in June and is now up 4.8% from a year ago, down from 5.3% in May.
• The shelter component of CPI still leads the price gains. However, the annual increase in shelter costs continued to fall as predicted by the past year’s slowdown in ZORI. The shelter index is up 7.8% year-over-year down from 8.2% in March.
• Rent of primary residence is now up 8.3% from a year ago, down from 8.8% in March.