Consumer prices fell sharply in June thanks to relief at the gas pump and a broad decline in inflation.
The consumer price index fell 0.4 percent last month compared with May, the Department of Labor said Tuesday. This is the largest decline since 2020. Compared with a year ago, prices are 3.5 percent higher.
Economists had forecast a 0.1 percent monthly decline after May’s sharp 0.5 percent increase. The inflation index was expected to climb 3.8 percent from a year earlier, a slowdown in annual inflation from May’s 4.2 percent.
Core prices, a measure that excludes food and energy, were flat compared with the prior month. That is the best inflation reading since January 2021. For the year, core prices are up 2.6 percent.
Based on the rounded monthly figures, headline consumer price index (CPI) rose at roughly a 2.8 percent annualized rate over the past three months. Core CPI rose at approximately 2.4 percent annualized over three months and 2.6 percent over six months.
Energy prices fell 5.7 percent in June after rising 3.9 percent in May, 3.8 percent in April, and 10.9 percent in March. Gasoline prices fell 9.7 percent after rising 7.0 percent in May, 5.4 percent in April, and 21.2 in March.
Grocery prices rose 0.2 percent for the month and are up 2.7 percent from a year earlier. Dining out prices also rose 0.2 percent for a 3.4 percent year-over-year increase.
Core goods prices—that is, those outside of energy and food—fell 0.2 percent and are up 0.8 percent from a year ago.
Services excluding energy-related services were flat for the month. They have risen 3.2 percent over the last 12 months. Services less rent of shelter fell 0.2 percent, the best reading since January 2021.
New car and truck prices were flat for the month. For the year, they are up 0.5 percent. Used car and truck prices fell 0.2 percent. Compared with a year ago, they are down 2.1 percent. Motor vehicle insurance prices fell 2.0 percent.
Apparel prices fell 0.6 percent. Medical care prices declined 0.1 percent.
Shelter prices rose just 0.1 percent, the best reading in over five years. For the year, they are up 3.3 percent. Rent climbed just 0.1 percent. A measure of the cost of homeownership climbed 0.2 percent.
Despite worries that AI chip demand would drive up the prices of consumer computers and phones, computer prices fell 0.7 percent and smartphone prices were down 0.8 percent.
The much-better-than expected inflation report likely takes a rate hike off the table this summer. Markets had been pricing in a significant chance that the Fed would increase interest rates at its meeting later this month. Several Fed officials had indicated that a hot inflation report might be enough to justify a hike.
The extremely low inflation in core goods prices suggests that President Trump’s tariffs have not raised prices for consumers, upending the widespread criticism from many economists. Democrats had called tariffs a national sales tax during the 2024 campaign but offered no evidence to support the claim, which now appears to have been disproven.
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