MICHEL MARTIN, HOST:
Americans have been wrestling with high inflation for more than two years now. And like many people, Alexandra Kloster is getting tired of paying more for everything - from rent to groceries to entertainment.
ALEXANDRA KLOSTER: It's just - has been really difficult to try to raise a family and to get ahead. It feels like two step forwards and one step back.
MARTIN: But Kloster and her family, like the rest of us, may be finally getting a breather. A new cost of living report out this morning shows that prices in June were up 3% from a year ago. That's the lowest annual inflation rate since March of 2021. And NPR's Scott Horsley is with us now with details of today's report. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Michel.
MARTIN: So it's good to hear that inflation is coming down because high prices have been tough to budget for. Before we get into the details of the report, how have people been making do?
HORSLEY: People are definitely looking for ways to economize. We've heard from a lot of people who've changed up their grocery shopping habits, maybe cut back on their entertainment expenses. Kloster told me she's turned to a secondhand store to find shoes and bluejeans for her two young children. It is summertime, though. Many people are still eager for a getaway. Kloster, who works in a medical office, and her husband, who's a full-time student, are spending this week at a cabin in northern Wisconsin. She says it's nice to get out of their cramped apartment in Milwaukee, but they are still watching their pennies.
KLOSTER: We're definitely not doing as much going to town or doing the tourist things. We're just trying to find free things to do, like walking, fishing. I'm trying to keep my kids entertained, but also trying to keep our budget low.
HORSLEY: There is some good news in this morning's report. We're seeing a break in travel cost. Airfares were down more than 8% last month. Hotel room rates were also down. Even though there's a lot of demand for summer travel, capacity in airplanes and hotels is starting to catch up. And jet fuel prices are also down this summer, so that helps as well.
MARTIN: Where else are we seeing a break in inflation?
HORSLEY: You know, gasoline prices are down more than 26% from this time last year. Of course, this time last year, they were at a record high - north of $5 a gallon. Grocery prices have also leveled off as supply chains have normalized. Egg prices fell another seven-plus percent last month after falling almost 14% the month before. Rents are still going up in the government data, but not as fast as they had been. And we expect those rising rents to level off more.
MARTIN: So to deal with all this, the Federal Reserve has been raising interest rates. That's kind of their main tool to fight inflation. So if inflation is cooling off, does that mean that the Fed will stop raising rates?
HORSLEY: Probably not just yet. The Fed is still expected to raise interest rates at least once more, when policymakers meet in a couple of weeks. Even at 3%, inflation is still above the Fed's target, which is 2%. And if you strip out food and energy prices, which bounce up and down a lot, so-called core inflation was 4.8% last month. So we've still got a ways to go. But Mark Hamrick, who is a senior economist at Bankrate, says inflation is moving in the right direction, especially when you compare it to the nine-plus percent inflation rate we saw this time last year.
MARK HAMRICK: We are not yet at the promised land, where the Federal Reserve can say mission accomplished, that that 2% target has not only been met but has been sustained. But we are surely on the journey.
HORSLEY: Still, Fed policymakers think it could take another couple of years to get all the way back to the 2% target. In other words, that last mile could be slow going. Now, earlier this week, the Federal Reserve Bank of New York put out a survey that shows people are feeling better about inflation in the short run, maybe thanks to those lower gasoline prices and leveling grocery prices. But they also think inflation's going to remain elevated. So it's not the urgent problem it was, but it could be kind of a chronic irritant.
MARTIN: That's NPR's Scott Horsley. Scott, thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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