Inflation fell from 4.2% to 3.5% — and July could undo the good news

Headline inflation in the United States cooled to 3.5% in June, down from 4.2% in May. Oil prices that fell during the ceasefire with Iran were the decisive factor behind the drop in the annual CPI.

Core inflation came in at 2.6% year on year in June, against 2.9% in May. The slowdown in the core measure suggests price pressure is easing in non-energy components as well.

Analysts nevertheless expect July's readings to come in higher. With oil climbing back towards $80 a barrel, headline inflation could be pushed up in the coming prints.

MHA Analysis

The improvement in the June print is cyclical rather than structural: oil that cheapened during the ceasefire. With crude back near $80 the same mechanism runs in reverse in July, which makes the fall in headline inflation look largely borrowed. The slowdown in the core measure is the more meaningful signal, and the thing to watch is whether that easing in non-energy components survives the oil shock.