United States consumer prices rose less than expected in June as a sharp decline in energy costs delivered the biggest monthly drop in headline inflation in more than six years, offering temporary relief from persistent price pressures.
According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) fell a seasonally adjusted 0.4% in June, bringing the annual inflation rate down to 3.5%.
Markets had expected the CPI to decline 0.1% for the month, with annual inflation easing to 3.8% from May's 4.2% reading.
The monthly decline in headline inflation was the largest since April 2020.
Core CPI, which excludes the volatile food and energy categories, was unchanged during the month, slowing the annual core inflation rate to 2.6%.
Markets had forecast monthly and annual increases of 0.2% and 2.9%, respectively, matching May's annual pace.
The moderation was driven largely by a sharp fall in energy prices. The energy index dropped 5.7% in June, its steepest monthly decline since April 2020, although it remained 15.7% higher than a year earlier.
Gasoline prices were still up 26.7% annually but fell more than 9% during the month, while fuel oil prices also declined by more than 9%.
Services inflation, a key measure closely monitored by Federal Reserve policymakers, also showed signs of easing.
Services excluding energy were unchanged in June, with shelter costs rising just 0.1% and transportation services falling 0.3%.
Elsewhere, food prices increased 0.2%, new vehicle prices were unchanged, used car and truck prices slipped 0.2%, and apparel prices fell 0.6%, reflecting lower energy costs and easing tariff-related pressures.
While the softer inflation report was welcomed by investors, it is unlikely to prompt the Federal Reserve to ease monetary policy in the near term.
Markets continue to expect the central bank to raise interest rates at its September meeting.
The inflation outlook also remains clouded by geopolitical risks. Falling oil prices helped drive June's softer inflation after easing tensions in the Middle East pushed crude prices roughly 25% lower during the month.
However, renewed hostilities between the United States and Iran have since sent oil prices higher again, raising the possibility that inflationary pressures could re-emerge if the conflict escalates.
