Gas prices drive the decline
The June Consumer Price Index showed that lower gasoline costs were the primary driver of the deceleration. Oil prices fell to their lowest level since before the Iran war began in late February, as traders priced in a potential diplomatic resolution. A gallon of regular unleaded averaged $3.21 in June, down 28 cents from May, according to AAA.
Core inflation remains sticky
Core inflation -- which excludes food and energy -- ran at 2.6% year-over-year, still above the Federal Reserve's 2% target. Shelter costs continued to climb, rising 0.4% month-over-month, while used car prices posted a modest decline. Fed officials have signaled they will hold interest rates steady through the fall, watching for sustained progress before considering any rate cuts.
Consumer sentiment improves modestly
The University of Michigan's consumer sentiment survey ticked up in early July, reflecting cautious optimism about inflation. However, consumers remain anxious about the Iran conflict and its potential to reignite price pressures. Economists warn that if the Strait of Hormuz blockade persists, the current relief at the pump could reverse quickly.