US inflation eased to 3.5% in June as energy prices fell

U.S. consumer prices fell 0.4% in June on a seasonally adjusted basis, taking the annual inflation rate down to 3.5%, the Bureau of Labor Statistics reported Tuesday. The decline was larger than economists expected and was led by a sharp retreat in energy costs, a move that helped ease pressure across the headline index.

Economists surveyed by Dow Jones had projected a 0.2% monthly decline and a 3.8% annual inflation rate. May’s annual CPI reading was 4.2%. The June monthly fall in headline CPI was the largest since April 2020, according to the BLS data cited in the report.

The consumer price index measures changes in prices paid by U.S. households for a broad basket of goods and services. The headline gauge includes volatile categories such as food and energy, which can move quickly with commodity prices, supply disruptions and geopolitical risk.

Energy pulled the headline index lower

The energy index dropped 5.7% in June, according to the BLS, although it remained 15.7% higher than a year earlier. Gasoline and fuel oil prices each fell by more than 9% during the month.

Food prices rose 0.2%. New vehicle prices were unchanged, while used cars and trucks declined 0.2%. Apparel prices fell 0.6%, a category CNBC noted can be affected by energy and tariff-related costs.

Measures of services inflation also softened. Services excluding energy were unchanged in June, while shelter costs rose 0.1%. Transportation services prices declined 0.3%, according to the BLS.

Core inflation came in below forecasts

Core CPI, which strips out food and energy to give policymakers a less volatile view of underlying price trends, was flat in June. That put the 12-month core inflation rate at 2.6%.

Dow Jones consensus forecasts had called for core CPI to rise 0.2% on the month and 2.9% from a year earlier. The annual core rate had stood at 2.9% in May.

U.S. stock market futures were mostly higher after the release, while Treasury yields moved sharply lower, CNBC reported. Bond yields typically fall when investors mark down expectations for future interest rates or demand more fixed-income assets, although intraday moves can reflect several factors.

Fed still focused on inflation

The softer June report does not, by itself, signal a near-term shift in Federal Reserve policy. CNBC reported that the central bank is widely expected to leave rates unchanged at its July 28-29 meeting, while market pricing pointed to a quarter-percentage-point increase in September.

The Fed’s target range for its key overnight borrowing rate is currently 3.5% to 3.75%. That rate influences borrowing costs across the economy through money markets, bank funding and longer-term interest-rate expectations.

Fed Governor Christopher Waller said Monday that he would need several months of favorable inflation data before being convinced that price growth is returning to the central bank’s 2% target, according to CNBC.

After its June meeting, the Federal Open Market Committee said it “will deliver price stability.” New Fed Chairman Kevin Warsh, who took office in May, has also made inflation control central to his public message.

“The Fed’s number one objective is to get monetary policy right, or as near to it as we possibly can,” Warsh said in remarks to Congress prepared for delivery Tuesday. “That is our clear and constant aim, the star we steer by. And if we get policy right, and we will, the inflation surge of the last five years will be a thing of the past.”

This story draws on original reporting from CNBC.