Inflation cools more than expected in June as gas costs fall and underlying prices ease

By — Christopher Rugaber, Associated Press Christopher Rugaber, Associated Press Leave your feedback Share Copy URL https://www.pbs.org/newshour/economy/inflation-cools-more-than-expected-in-june-as-gas-costs-fall-and-underlying-prices-ease Email Facebook Twitter LinkedIn Pinterest Tumblr Share on Facebook Share on Twitter Inflation cools more than expected in June as gas costs fall and underlying prices ease Economy Jul 14, 2026 12:56 PM EDT WASHINGTON (AP) — U.S. inflation cooled last month as the cost of gas, clothes, and used cars fell, providing some relief to consumers, while underlying price pressures also cooled more than expected. Prices dropped 0.4% from May to June, the largest monthly drop in four years, the Labor Department said Tuesday. On a yearly basis, inflation declined to 3.5%, down from a year-over-year gain of 4.2% in May and lower than many economists expected. READ MORE: Trump backs away from plans to charge fees in the Strait of Hormuz Yet oil prices rose for a second day Tuesday as the United States renewed attacks on Iran and President Donald Trump announced a new blockade in the Strait of Hormuz, a key shipping route for about one-fifth of the world's oil. And many Americans have soured on the economy after five years of elevated inflation, posing a risk to Trump and Republicans in the upcoming midterm elections. Educate your inbox Subscribe to Here’s the Deal, our politics newsletter for analysis you won’t find anywhere else. Still, excluding the food and energy categories, core prices were unchanged in June, a positive sign that underlying inflation is cooling. On a yearly basis, core prices rose just 2.6%, down from 2.9% the previous month. Core inflation remains above the Federal Reserve's target of 2%. The core figures suggest that the gas price spike from the Iran war, while it pushed up airfares and some other costs, hasn't so far led to broad-based, sustained inflation, economists said. WATCH LIVE: Fed chair Kevin Warsh testifies on monetary policy in House hearing "This reading is very much in the camp that the inflation we've had this year is transitory," said Michael Metcalfe, head of macro strategy at State Street Markets. "Yes, gas prices went up, but nothing else did, more or less." Benign report could make Fed rate hike less likely Tuesday's report likely reduces pressure on the Fed to boost its short-term interest rate to combat inflation. Last month, Fed officials left their key rate unchanged at about 3.6%. "Today's report gave some breathing room for the Federal Reserve in deciding whether and when to raise interest rates," Kathy Bostjancic, chief economist at Nationwide Financial, said. Fed Chair Kevin Warsh, in written testimony to the House Financial Services Committee, said Tuesday that the Fed has "no tolerance" for high inflation which he pledged would become "a thing of the past." Yet he provided no hints about what steps the Fed may take in coming months. Warsh will face questions later Tuesda