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.
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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.
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.
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 now 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.”
