Inflation cooled considerably in June, with new government data showing consumer prices posted their largest monthly decline since 2020, driven primarily by falling energy costs and lower prices at the gas pump.
According to the Department of Labor, the Consumer Price Index (CPI) fell 0.4 percent in June compared with May. Economists had expected a much smaller decline of 0.1 percent following May’s 0.5 percent increase.
On an annual basis, consumer prices were up 3.5 percent, below the consensus forecast of 3.8 percent and down from May’s 4.2 percent year-over-year reading.
The report also contained encouraging news on core inflation, which excludes the often-volatile food and energy categories. Core prices were unchanged from the previous month, marking the strongest monthly reading since January 2021. Over the past 12 months, core inflation measured 2.6 percent.
Viewed over shorter timeframes, inflation appears to be moderating further. Based on the monthly figures, headline CPI has increased at an annualized pace of roughly 2.8 percent over the past three months, while core CPI has run at approximately 2.4 percent over the same period and 2.6 percent over the last six months.
Energy prices were the largest contributor to June’s decline.
The energy index fell 5.7 percent after posting increases in each of the previous three months. Gasoline prices dropped 9.7 percent, reversing the sharp gains recorded earlier this spring, when prices had climbed 21.2 percent in March, 5.4 percent in April, and another 7.0 percent in May.
Food prices continued to rise, but at a modest pace. Grocery prices increased 0.2 percent during the month and were up 2.7 percent from a year earlier. Restaurant prices also rose 0.2 percent, bringing their annual increase to 3.4 percent.
Outside of food and energy, prices remained largely subdued.
Core goods prices slipped 0.1 percent in June and were up just 0.8 percent compared with a year ago. Services excluding energy-related categories were flat for the month, while services excluding shelter declined 0.2 percent, their best monthly performance since January 2021.
Vehicle prices also showed little sign of inflationary pressure. New car and truck prices were unchanged in June and were up only 0.5 percent over the previous year. Used vehicle prices fell 0.2 percent during the month and were down 2.1 percent year over year. Motor vehicle insurance, a category that has seen significant increases in recent years, declined 2.0 percent.
Other consumer categories also moved lower. Apparel prices fell 0.6 percent, while medical care prices edged down 0.1 percent.
Housing costs, which have remained one of the most persistent drivers of inflation, also showed signs of easing. Shelter prices increased just 0.1 percent in June, their smallest monthly gain in more than five years. On an annual basis, shelter costs were up 3.3 percent. Rent also rose only 0.1 percent, while the index measuring homeowners’ equivalent rent increased 0.2 percent.
Despite concerns that demand for artificial intelligence hardware could push up electronics prices, the report showed the opposite trend. Computer prices fell 0.7 percent during the month, while smartphone prices declined 0.8 percent.
The softer-than-expected inflation report is also likely to influence expectations for Federal Reserve policy. Before the data was released, financial markets had assigned a meaningful probability to another interest rate increase at the Fed’s upcoming meeting, and several central bank officials had suggested that a stronger inflation report could justify additional tightening.
The June figures may alter that outlook by indicating that inflationary pressures continue to ease across a broad range of consumer categories.
