Inflation slowed to an annual rate of 3.5% in June after the tenuous ceasefire agreement in the U.S.-Iran war temporarily reopened commercial shipping last month and led to a substantial drop in crude oil prices that gave Americans a brief respite at gasoline pumps.
However, oil prices have surged again in July following the collapse of the U.S.-Iran agreement, suggesting the next inflation report, due on Aug. 12, will not bring the same good news.
According to the U.S. Bureau of Labor Statistics report released Tuesday, the all-items Consumer Price Index (CPI) for June had the largest one-month decline in six years, falling a seasonally adjusted 0.4% bringing the annual inflation rate down to 3.5%.
Core inflation, which excludes food and energy costs, was flat on the month, putting the 12-month rate at 2.6%. Prices fell in June for apparel, used cars, car insurance and medical care. Shelter costs were up 3.3% in June compared to June of 2025.
The energy index was the largest contributor to the all-items decrease in the CPI, falling 5.7% for the month of June. Before that, energy prices had been on the rise since the U.S. Iran war began on Feb. 28, increasing 10.9% in March; 3.8% in April; and 3.9% in May.
Within the energy index, gasoline prices decreased 9.7% between May and June but are still 26.7% above June of 2025.
Wall Street reacted positively to Tuesday’s CPI report with early trading showing gains for the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average.
Traders now see the probability of an interest rate increase at the Federal Reserve’s meeting on July 29 as much less likely. According to the CME Group’s FedWatch, 87.7% expect the Fed to keep interest rates the same, and 12.3% predict a rate increase. Yesterday, prior to the release of the June CPI, traders had put the odds of an interest rate increase at 41.7%.
