The Labor Department said CPI data showed U.S. prices fell 0.4% in June from May, the largest monthly drop in four years. Core prices were unchanged, giving consumers some relief after months of faster increases.
Year-over-year inflation eased to 3.5% in June from 4.2% in May. FactSet economists had expected a 0.2% monthly drop and a 3.9% annual increase, so the report came in weaker than forecast on the monthly figure and lower on the yearly rate.
June and May prices
Gas prices helped pull the index down, along with lower prices for clothes and used cars. New and used car prices are expected to have fallen, and gas prices have fallen a bit more in July, which could carry into the next reading.
Core inflation rose 2.6% from a year earlier in June, down from 2.9% in May and still above the Fed’s 2% target. Prices for many services, including restaurant meals, entertainment, and healthcare, are still rising more quickly than they did before the pandemic, limiting how fast the overall pace can fall.
Iran and Brent crude oil
The June improvement comes as oil prices are rising again because of renewed conflict involving Iran. On Monday, Brent crude oil climbed 9.6% to $83.30 after the United States and Iran each said the Strait of Hormuz is under its control.
That leaves the next inflation report as the main test of whether lower July gas prices or higher oil prices dominate. For households, the near-term read is straightforward: June brought relief at the pump and in a few goods categories, but energy costs could still feed back into the summer numbers.
Fed June 16-17 meeting
The report also lands as the Fed weighs how long to keep rates where they are. Minutes from the June 16-17 meeting showed about half of policymakers supported raising interest rates by the end of the year, while another half were willing to wait for signs that inflation may resume falling.
With core prices still above target and energy markets moving again, the next CPI reading will help show whether June was the start of a steadier slowdown or a brief pause in a still uneven path.
