The Bureau of Labor Statistics reported the update to the consumer price index on Tuesday. In June alone, prices fell by 0.4%, the largest such decrease since 2020.
The decline in prices in the month was caused primarily by a 10% drop in the price of gas, which was downstream of the resumption of oil tanker traffic through the Strait of Hormuz, a key global supply chokepoint, following the agreement between the U.S. and Iran.
But the relief may be short-lived. Oil prices have popped back up in recent days as that agreement has eroded and tankers have faced threats transiting the strait, leaving uncertainty about the trajectory of gasoline prices.
“This is great news for Kevin Warsh and the Fed,” said David Russell, global head of market strategy at TradeStation, Everyone expected energy to drop, but there was also good news in car prices, shelter and apparel. However, these trends might not last if renewed conflict in the Middle East lifts oil prices. Disinflation gets harder going forward if energy doesn’t keep falling.
US SET TO DODGE BIDEN-LEVEL INFLATION DESPITE IRAN DISRUPTIONS
The report is welcome news for the Trump administration, which has been working to highlight any progress in lowering inflation. The decline. Still, inflation is above the Federal Reserve’s target of 2%, and many investors and Fed watchers expect an interest rate increase this year.
The bump in inflation since the start of 2026 was driven in large part by higher energy prices, which have soared since the Iran war.
Trump has seen his economic approval ratings fall dramatically since he entered office, in large part because of voter discontent with affordability issues. The higher inflation this year threatens to imperil Republicans in the midterm elections.
Core inflation, a measure that strips out volatile food and energy prices, fell three-tenths of a percentage point to 2.6% for the year ending in June.
Families are feeling the strain of higher prices for goods and services they use routinely. For instance, restaurant prices have gone up 3.4% in just the past year. The price of beef and veal has risen nearly 12% over the past year. Fruit and vegetable prices have increased by 5.3%, on average.
Clothing prices have risen 3.9% and electricity prices have risen 4%.
On the other hand, families looking to buy cars are seeing some relief. Used car prices have fallen 1.8% from June 2025, and new car prices have been flat over the past year. Chicken prices have also fallen more than 2%, and butter has dropped by 8.7%.
This latest CPI report comes after the Fed voted to hold interest rates steady at its meetings in January, March, April, and at new Fed Chairman Kevin Warsh’s first meeting in June.
Given the hotter inflation prints in recent months, investors think the odds of a rate cut this year are essentially nonexistent. In fact, a rate increase might even be on the table, given the higher inflation and underlying strength in the labor market.
Despite the higher inflation rate, experts don’t think the country is at the beginning of another massive inflation tsunami as was experienced in 2021 and 2022, which saw annual price growth pushing as high as 9%.
When inflation began spiking in early 2021, the economy was emerging from the pandemic, and the government was pumping stimulus money into the economy while the Fed held interest rates near zero for an extended period.
One factor boosting the odds that the Fed increases rates in the next few months is that the labor market has remained resilient.
The economy has added jobs at a pace strong enough to keep unemployment trending down. The economy added 57,000 jobs last month.
The unemployment rate fell one-tenth of a percentage point to 4.2%, the Bureau of Labor Statistics reported on July 2. That is low by historical standards.
Also, while President Donald Trump repeatedly criticized former Fed Chairman Jerome Powell for not cutting interest rates, he has seemed to back off on such an aggressive posture with Warsh for the time being.
TRUMP SAYS HE WILL DEFER TO FED CHAIRMAN KEVIN WARSH ON RATE HIKE BEFORE MIDTERM ELECTIONS
The Washington Examiner spoke with Trump by phone Friday morning, and the president indicated that he will defer to Warsh on interest rates.
“There should be a reduction, but I’ll go with the chairman,” Trump said.
