After the CPI report, traders continued to see the central bank lowering borrowing costs in September as most likely.

(July 11): US inflation cooled broadly in June, driven by a long-awaited slowdown in housing costs and providing another dose of confidence for Federal Reserve (Fed) officials that they can cut interest rates soon.

The so-called core consumer price index (CPI) — which excludes food and energy costs — climbed 0.1% from May, the smallest advance since August 2021, Bureau of Labor Statistics figures showed. The year-over-year measure rose 3.3%, also the slowest pace in more than three years, according to data out Thursday.

Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure fell 0.1% from the prior month — the first decline since the onset of the pandemic, dragged down by cheaper gasoline — and 3% from a year ago.

In addition to slower rental inflation, the costs of other services like airfares, hotel stays and inpatient hospital care all declined from a month earlier. For goods, new and used vehicle prices led broader decreases in core goods.

The figures add to evidence that inflation has resumed its downward trend after a flare up at the start of the year, while broader economic activity appears to be slowing. In the wake of a report last week that showed a third straight month of rising unemployment, the data should keep the Fed on a path toward cutting interest rates later this year.

After the CPI report, traders continued to see the central bank lowering borrowing costs in September as most likely, while Treasuries rallied. Policymakers will also meet later this month.

Separate figures Thursday showed recurring applications for jobless benefits held near the highest level since late 2021. At the same time, first-time filings fell by 17,000 last week, matching the largest drop in a year, providing some optimism that the job market is holding up.

Chair Jerome Powell in testimony before lawmakers this week avoided signalling the timing of likely rate cuts and insisted policy moves will be guided by incoming data.

While the figures are reported to one decimal point by the BLS, officials have been increasingly drawing the numbers out further to get a more comprehensive picture of the direction inflation. On a three-decimal basis, core CPI rose 0.065%.

Shelter prices, which is the largest category within services, climbed 0.2%, the smallest gain since August 2021. Owners’ equivalent rent — a subset of shelter, which is the biggest individual component of the CPI — climbed 0.3%, also the tamest in three years.

Excluding housing and energy, services prices fell for a second month, according to Bloomberg calculations. While central bankers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.

That measure, known as the personal consumption expenditures (PCE) price index, doesn’t put as much weight on shelter as the CPI does. That helps explain why the PCE gauge is trending closer to the Fed’s 2% target.

The PCE measure, released later this month, draws from the CPI as well as certain categories within the producer price index, which is due Friday.

The latest results from Delta Air Lines Inc suggest scope for some services inflation to cool. The carrier’s revenue projections came in weaker than forecast as competition in the domestic market drives ticket prices lower.

“Excess supply has led to heavy discounting,” Delta chief executive officer Ed Bastian said in an interview. “Like everyone, you get impacted.”

Meanwhile, a sustained decline in the price of goods over most of the past year has largely been providing some relief to consumers. So-called core goods prices, which exclude food and energy commodities, fell in June for a fourth month.

Prices of new vehicles declined for a sixth month, and several apparel categories dropped as well. The cost of household furnishings has fallen nearly every month for the past year.

There are also signs that consumers are growing increasingly sensitive to higher prices. Earlier on Thursday, PepsiCo Inc reported weaker-than-expected revenue growth as budget-focused shoppers weighed on the volume of goods sold. The salty snacks category has been particularly lacklustre.

A separate report Thursday, combining the inflation data with figures on wages published last week, showed real earnings growth has been positive for the past year.

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