Consumer prices recorded their steepest monthly decline in more than six years during June, offering Americans temporary relief from a persistent inflation surge.
The consumer price index fell a seasonally adjusted 0.4% for the month, bringing the annual inflation rate down to 3.5%, the Bureau of Labor Statistics reported Tuesday.
Economists surveyed by Dow Jones had expected a monthly drop of 0.2% and an annual inflation rate of 3.8%, following the 4.2% reading recorded in May.
The monthly decline in headline inflation was the largest since April 2020, marking a notable shift in a price environment that has frustrated consumers and policymakers alike.
Core inflation, which strips out volatile food and energy costs, was flat on the month, putting the 12-month rate at 2.6%, well below the consensus forecast of 2.9%.
The energy index slumped 5.7% in June, its biggest monthly drop since April 2020, though energy prices still surged 15.7% on an annual basis, driven by a 26.7% gain for gasoline over the year.
Gasoline and fuel oil both saw decreases of more than 9% in June, providing significant downward pressure on the overall index for the month.
Services costs, which Federal Reserve policymakers closely monitor for longer-run inflation trends, also moderated significantly, with shelter rising just 0.1% and transportation services falling 0.3%.
Food prices rose 0.2%, new vehicles were flat, used cars and trucks fell 0.2%, and apparel prices dropped 0.6%, reflecting sensitivity to both energy and tariff inputs.
“June finally brought some relief on inflation,” said Heather Long, chief economist at Navy Federal Credit Union. “This takes the pressure off the Federal Reserve and allows the central bank to wait and see what happens.”
Long added a cautionary note, warning that “the concern is that this relief will be short-lived as the war in Iran re-starts” and that “it’s too uncertain to know how the inflation story ends.”
Stock market futures were mostly positive following the report while Treasury yields fell sharply, though traders still expected the Fed to hike rates in September.
Traders lowered the odds of a September hike to 63% from better than 75% a day earlier, according to the CME’s FedWatch measure of futures prices, with the Fed’s key rate currently targeting a range of 3.5% to 3.75%.
Fed Chairman Kevin Warsh struck a cautious tone in response, saying “there might be some that look at this morning’s data and say, ‘Oh, mission accomplished, everything is swell'” but adding plainly: “That is not my view.”
Warsh, who took office in May, has made controlling inflation central to his message and told Congress on Tuesday: “The Fed’s number one objective is to get monetary policy right — or as near to it as we possibly can.”
Fed Governor Christopher Waller said on Monday that it would take several months of positive inflation readings to convince him that prices were moving back toward the central bank’s 2% target.
An easing of Middle East hostilities helped drive oil costs approximately 25% lower in June, but President Donald Trump declared last week that a ceasefire with Iran had collapsed after both sides exchanged attacks.
“The longer the conflict drags on, the higher the probability that the Fed will have to hike and back its promise from Warsh’s first meeting as Chair to ‘deliver on price stability,'” said Ryan Weldon, investment director at IFM Investors.