On July 11, 2024, the Bureau of Labor Statistics (BLS) released data that includes the month of June 2024. The year-over-year CPI inflation rate came in at 3.0%. The average for the five months of 2024 is 3.2%. These readings remain above the Fed’s 2% target. However, there was good news -- the one-month change from May to June, annualized, was negative 0.7%, following up on the one-month change from April to May of 0.1%, also annualized. Still, we have repeatedly stated that monthly rates are rather volatile and should be looked at with caution.
While the ‘Headline’ CPI is designed to measure an average of all prices based on household spending, the ‘Core’ CPI, the CPI Less Food and Energy Prices, excludes a set of prices that are more volatile. Some claim it provides a better measure of the underlying or more persistent inflation, and that it is a better predictor of future headline inflation. The year-over-year core CPI inflation rate came in at 3.3% in June 2024. For this inflation measure, the one-month change, annualized, was 0.8%. This follows the one-month change in May, annualized, of 2.0%. These monthly indicators are no doubt greeted with some relief in the halls of the Federal Reserve.
Figure 1 graphs these CPI inflation rates since January 2021, and the volatility of the monthly (annualized) rates is apparent. It is also clear that the year-over-year rates are elevated, and that the monthly rate for May is much lower than earlier months of 2024, good news if this continues into the summer.
The BLS also released wage data earlier this month and average hourly earnings of all private sector workers increased by 0.3% from May to June, an annualized rate of 3.5%. Year-over-year, wages in June 2024 were 3.9% higher than in June 2023.
It is more important to focus on real wages, i.e., wages adjusted for inflation. An increase in real wages is an increase in the purchasing power of wages. Wages in June were 3.9% higher than a year ago, and prices were 3.0% higher, so real wages rose by 0.9% over the past twelve months.
Figure 2 graphs wages, the CPI, and real wages since January 2021. The decline in real wages from January 2021 through June 2022 is shown in the data, as the CPI grew faster than wages. In June 2022, real wages were 4.2% lower than in January 2021. Since then, the moderation of CPI inflation and the continued growth in wages have led to a period of generally positive but small increases in the purchasing power of wages. Wages have still not completely caught up with the rise in prices. As of June 2024, the purchasing power of wages was 1.9% lower than in January 2021.
