Inflation eased to 3.5% in June, primarily thanks to energy prices that briefly fell after the U.S. and Iran signed a memorandum of understanding in a bid to end the ongoing war.
From May, consumer prices broadly fell 0.4%, more than economists had been expecting.
“This decline in the all items index was the largest 1-month decrease since April 2020,” the Bureau of Labor Statistics said. “The index for energy fell 5.7% in June,” the agency added.
After energy prices, some of the categories that also contributed to the dip in inflation included a drop in the cost of apparel, used cars and trucks, and housing.
But even as other costs fell, food prices climbed higher over the month. “Four of the six major grocery store food group indexes increased in June,” BLS said in its report.
The price of takeout also increased, with the “food away from home” category rising 0.2%. “The index for full service meals rose 0.4%,” BLS added.
But core inflation, which excludes food and energy costs, was unchanged in the month, a worrying sign of how sticky higher prices may be outside of energy prices themselves.
The White House said the June figures proved that President Donald Trump was right when he had predicted that increased traffic in Hormuz and lower oil prices would put downward pressure on inflation.
In testimony released at the same time as the BLS report, Federal Reserve Chairman Kevin Warsh said that Fed policymakers “have no tolerance for persistently elevated inflation.”
Warsh added that the Fed shares “a resolute commitment to restoring price stability.”
The report does not reflect a renewed spike in energy prices that started this week.
Despite the dip in overall inflation, higher prices are likely to remain a major headache for consumers and policymakers.
Just this week so far, oil prices have jumped around 15%, which some analysts say will bring higher gas prices again in the days to come.
Compounding the issue with energy prices, critical oil storage hubs have been drawn down in a bid to keep a lid on prices, but those storage facilities have reached decades-low levels. They will need to be refilled with hundreds of millions of barrels of oil, which could also cause prices to rise.
The explosive buildout of artificial intelligence systems and data centers around the world is also driving price increases.
As tech giants such as Microsoft, Amazon, Google, Meta and others are racing to buy up as much memory as they can, the prices of key components are surging. There are also only a handful of global companies that make memory for iPhones, computers and data centers.
As a result, Apple last month raised the price of many of its flagship products.
“The rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage,” the company said in a statement at the time. “We have never seen a component price increase this much, this quickly.”
In Tuesday’s report, the “computer software and accessories” category jumped 2.3% from May to June. From a year ago, prices tracked in that index have soared 17.4%.
