June CPI Comes in at 3.5%, Smashing Below Forecasts

This is a big miss — in the right direction. June CPI printed 3.5% year-over-year against a 3.8% consensus, and the monthly read came in at -0.4% versus the -0.1% expected. The prior month was +0.5%. That's a massive swing, and the market felt it instantly. Fed funds futures slashed their rate-hike expectations: July meeting pricing collapsed from 9.2 basis points to just 3.9 bps, and the December tally fell from 41 bps to 32.7 bps.

Core is the number you really want to stare at. Core CPI y/y came in at 2.6% versus 2.8% expected, down from 2.9% prior. Month-over-month? Flat. Zero. That's the softest core monthly print since January 2021. Shelter — the stubborn beast that's been holding inflation up — rose just 0.1% on the month, also the smallest gain since January 2021. Owners' equivalent rent clocked +0.2% and primary rent +0.1%. The housing disinflation trade is finally showing up in the data.

Read more June CPI Drop Is a Gas Mirage, Not a Fed Green Light →

The headline story was energy. Gasoline cratered 9.7% on the month, dragging the energy index down 5.7% — the steepest drop since April 2020. That's your headline driver. Beyond that, motor vehicle insurance fell 2.0% for a second straight month, lodging dropped 2.3%, and apparel slid 0.6%. Not every corner was soft — recreation rose 0.5% and some goods categories still carry tariff fingerprints — but commodities ex-food-and-energy fell 0.1% on the month and are barely up 0.8% year-over-year.

Here's the tradeable reality check though: oil is already up more than 10% in a week, and gasoline prices are being propped up by a tight refining market. The deflation tailwind from energy could reverse fast. The Fed gets cover today, but the picture for July and August CPI is murkier. One more thing — seasonal factor distortions from the 2025 appropriations lapse are still in the mix, so treat monthly precision carefully. The direction, however, is clear.

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