CPI Cooled but the Consumer Is Still Sweating

The latest inflation report offers consumers something that has been absent for much of the past several years: a measurable decline in overall prices. Whether that translates into stronger spending, however, is a separate question.

As reported Tuesday (July 14), the Consumer Price Index (CPI) fell 0.4% in June after rising 0.5% in May, marking the first monthly decline in more than two years and the largest monthly drop since April 2020. On a year-over-year basis, inflation slowed to 3.5%, down from 4.2% in May.

The decline was driven largely by energy. The energy index fell 5.7% during the month, with gasoline prices dropping 9.7%. That reversal followed several months of sharp increases in fuel costs. Even after June’s decline, however, gasoline prices remained 26.7% higher than a year earlier, underscoring that consumers are still paying materially more at the pump than they were last summer.

Beyond the energy segment, the picture was more restrained. Food prices rose 0.2% during the month, with both grocery prices and food away from home moving higher. Food prices were up 3% from a year earlier. Shelter costs also continued to rise, although at a modest 0.1% monthly pace. Core inflation, which excludes food and energy, was unchanged in June, its first flat monthly reading since June 2021. Transportation services and medical services both edged lower during the month.

Lower Inflation Does Not Automatically Produce Stronger Spending

The June CPI report may ease some immediate pressure on household budgets, but PYMNTS Intelligence research suggests that the relationship between inflation and consumer spending has become more complicated.

The PYMNTS Consumer Expectations Index, discussed in the report “The Inflation Mirage: What Rising Spending Hides About Consumer Demand,” argues that recent spending gains have reflected higher prices more than stronger consumer demand. Looking at Bureau of Economic Analysis data through April, the report found that roughly 0.4 percentage points of April’s 0.5% increase in consumer spending came from higher prices, while real purchasing volume accounted for only about 0.1 percentage points. In other words, consumers were spending more dollars without purchasing substantially more goods and services.

The report also points to household finances that remain under strain despite continued spending. Personal income was flat in April, while the personal savings rate fell to its lowest level since June 2022, suggesting that spending has been supported partly by drawing down savings rather than by stronger income growth.

Consumer sentiment within the PYMNTS survey reflects those pressures. The overall Consumer Expectations Index stood at 53.6 in June, only slightly above neutral, while the macroeconomic and buying climate measure remained below the neutral 50 level throughout the year. Respondents expressed less confidence about making major purchases even as labor-market perceptions remained comparatively stable.

Among consumers living paycheck to paycheck and struggling to pay bills, 43% said they could not cover a $1,200 emergency expense within a week. Sixty-eight percent reported having one month or less of savings remaining, while 45% said they had no savings at all.

The June inflation figures and the PYMNTS Intelligence research point toward a consumer economy that is entering a different phase. Falling gasoline prices and stable core inflation may provide some welcome relief after several months of elevated price pressure. Yet households that have already depleted savings, postponed discretionary purchases or relied on supplemental income may not respond immediately by expanding spending. For retailers, banks and payments providers, the headline figures bump up against a consumer who still is juggling the realities of day-to-day triaging of expenses.