US June CPI rises 3.5% YoY, drops 0.5% MoM in largest monthly decline since April 2020

Topline

Inflation cooled faster than expected in June, driven by a brief peace deal between Iran and the U.S. that lowered oil prices, according to federal data released Tuesday. Federal Reserve officials suggested that long-term price increases would soon be a "thing of the past."

Key Facts

• Consumer prices rose 3.5% from June 2025 and dropped 0.5% from May to June, the Bureau of Labor Statistics reported. This was well below consensus analyst estimates of a 3.9% annual increase, according to FactSet.
• The month-to-month decline of 0.5% is the largest since April 2020 (0.8%), according to the agency.
• Gas prices fell 9.7% from May to June—the largest decrease of any item tracked by the Bureau of Labor Statistics. Fuel oil prices dropped 9.2%, and the broader energy sector fell 5.7%.
• Core CPI, which excludes volatile energy and food sectors, stood at 2.6% in June, below estimates of 2.9%.

What to Watch For

Federal Reserve Chair Kevin Warsh, in prepared remarks to Congress, pledged the central bank will "get monetary policy right" and said "the inflation surge of the last five years will be a thing of the past." Warsh added that the Fed has "no tolerance for persistently elevated inflation." He did not clarify what he considered to be the "right" policy.

Big Number

61.3% — The combined odds priced in by futures traders of an interest rate hike next month as of Tuesday morning, according to CME Group’s FedWatch tool. Those odds steadily increase through December, reaching 82.4% in the Federal Open Market Committee’s last meeting of the year, before rising to a high of 89.2% by April 2027. In the FOMC’s meeting last month, "many" officials argued that interest rates would be "within or slightly below" the current range by the end of the year, even as "many other" participants assessed that rates would be higher.

Key Background

The Federal Reserve has cited elevated inflation in recent months as the reason for votes to keep interest rates at 3.5%–3.75%. Consumer prices jumped earlier this year shortly after the U.S. struck Iran, which sent oil and gas prices surging. A brief reprieve at the pump followed an interim peace deal. However, prices soon spiked again after President Donald Trump announced earlier this month that the deal was "over" and that the U.S. would "probably" hit Iran with strikes again, noting he was "not sure" he wanted another peace agreement.

Further Reading

• Forbes: Inflation Hit Highest Rate In 3 Years In May — By Ty Roush
• Forbes: Fed Minutes Signal No Interest Rate Cuts Until 2027—As Renewed Iran Conflict Spikes Rate Hike Odds — By Ty Roush