Key facts
- US June CPI fell 0.4%, the largest monthly decline since April 2020.
- Core CPI, excluding food and energy, was flat in June, its weakest reading since May 2020.
- Year-over-year CPI rose 3.5% in June, down from 4.2% in May.
- Gasoline prices dropped 9.7% in June.
- Shelter prices saw their smallest gain since January 2021, increasing 0.1%.
U.S. consumer inflation slowed more than expected in June, with the Consumer Price Index (CPI) falling 0.4% month-over-month and rising 3.5% year-over-year. This decline was largely driven by a 9.7% drop in gasoline prices. Core CPI, which excludes volatile food and energy prices, held flat for the month and rose 2.6% year-over-year, its weakest reading since May 2020. Shelter prices also cooled significantly, increasing by only 0.1%.
These softer inflation figures have led monetary policy watchers to believe the Federal Reserve will likely leave benchmark interest rates unchanged at its upcoming July meeting. The CME Group FedWatch Tool now shows an 85.6% probability of no rate hike, a significant shift from previous expectations. Fed Governor Christopher Waller has indicated that policymakers would need to see a sustained series of cooler readings, particularly in core inflation, before concluding that elevated inflation is behind us.
The cooling inflation and a drop in Treasury yields are expected to remove near-term upward pressure on mortgage rates, which have hovered around 6.5%. However, economists caution that the durability of this relief depends on whether core inflation continues to cool in the coming months, especially given the historical volatility of energy prices and renewed geopolitical tensions in the Middle East.