June’s Consumer Price Index (CPI) showed that inflation rose 0.2%, with this monthly reading coming in just below estimates. On an annual basis, CPI fell sharply from 4% in May to 3% last month, reaching its lowest level in more than two years. Core CPI, which strips out volatile food and energy prices, increased 0.2% while the annual reading declined from 5.3% to 4.8%.

Declining costs for used cars and airfares helped inflation last month, while stubbornly high shelter costs remained a key contributor.

What’s the bottom line? Inflation has declined sharply from the 9.1% peak seen in June 2022, and it continues to make meaningful progress lower with the headline reading now all the way down to 3%. Easing inflation is welcome news as it signifies a break from price increases for some goods and services. Lower inflation also typically helps both Mortgage Bonds and mortgage rates improve over time. In fact, Mortgage Bonds had a strong rally last Wednesday after this report was released.