US: Inflation Cools More Than Expected in June on Broad-Based Softness

Jul 14 26, 13:27 GMT

The Consumer Price Index (CPI) fell 0.4% month-on-month (m/m) in June – the largest one-month decline since April 2020 and larger than consensus expectations. On a twelve-month basis, CPI stepped down to 3.5% (from 4.2% in May).
- The 5.7% m/m drop in energy costs was the main driver of the decline in CPI in June. Food prices rose 0.2% m/m and are up 3.0% on a twelve-month basis.
Excluding food and energy, core prices were unchanged in June, also below expectations for a 0.2% m/m gain. On a twelve-month basis, core prices were up 2.6% —down from 2.9% in May and the slowest pace since before the U.S. -Iran conflict.
Core goods prices fell 0.1% m/m for the second consecutive month. Prices fell for apparel (-0.6% m/m), medical goods (-0.2% m/m) and used vehicles (-0.2% m/m). On a twelve-month basis, core goods prices are up 0.8%, the slowest pace since June 2025.
The bigger surprise was core services prices, which were flat on the month but are still up 3.2% y/y. Shelter costs rose just 0.1% m/m after a string of hotter readings. Vehicle insurance (-2.0% m/m), communication (-1.5% m/m) and medical care (-0.1% m/m) all contributed to the softness in services.

Key Implications

Headline inflation took a larger step in the right direction in June than expected, and it wasn’t all due to the monthly drop in global crude oil prices. The cooler core reading was also welcome, though we would be cautious about extrapolating one month of data, especially since crude has retraced much of its June drop.
The next FOMC meeting is in a couple of weeks, and the June inflation data should help to quiet some of the more hawkish voices. The 2-Year Treasury yield is down about six basis points since the release, and market pricing for Fed hikes this year has also eased. Markets are also likely to key off Chair Warsh’s testimony before the House Financial Services Committee at 10:00 a.m. today.