US Inflation Cools to 3.5% in June as Energy Prices Drop

US consumer price index (CPI) inflation eased to 3.5% in June, down from 4.2% in May, offering consumers some relief from high gasoline prices. The energy index saw a substantial decrease of 5.7% for the month, significantly contributing to the overall drop in inflation.

Core inflation, which excludes the more volatile energy and food components, held steady in June. The annual core inflation rate was recorded at 2.6%. While the headline inflation figure provides a respite, its sustainability is uncertain. Global crude oil prices have begun to climb again after a period of decline, influenced by renewed hostilities between Iran and the US.

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The index for energy fell 5.7 per cent in June after rising 3.9 per cent in May, 3.8 per cent in April, and 10.9 per cent in March. The energy index was the largest contributor to the monthly all-items decrease, more than offsetting increases in other indexes, including those for shelter and food.

The recent spike in crude oil prices, with Brent crude reaching $86 and US West Texas Intermediate at $80, threatens to reverse the downward trend in headline inflation. High energy prices have been a primary driver of inflation this year, particularly following the start of the US-Iran conflict. An interim peace agreement in June had previously led to a cooling of oil prices.

Federal Reserve Governor Christopher Waller indicated that the central bank must avoid repeating past mistakes in combating inflation. Meanwhile, President Trump faces pressure from rising inflation as the November midterm elections approach. He had previously urged US oil companies to lower gasoline prices and ordered a probe into the matter.

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The central bank shouldn't "fight the last war" on inflation. He said that he is aware of the situation and the Fed won't repeat past mistakes, referring to the post-COVID phase when the central bank came under criticism for responding late to rising inflation. The delay cost the economy dearly as the inflation became more entrenched.