Average gasoline prices dropped to $4.18 a gallon from $4.61 in May, which was the highest level since July 2022, data from the U.S. Energy Information Administration showed. Prices remain well above their pre-war levels. The modest relief at the pump was likely offset by an anticipated pick up in food prices, following a marginal increase in May.
Higher food prices are expected
The U.S.-Israel war with Iran has raised fertilizer prices and distribution costs and, together with dry conditions in some parts of the country, could drive up food prices later this year and into 2027, economists said.
Excluding the volatile food and energy components, the CPI was forecast increasing 2.8% year-on-year in June after rising 2.9% in May. The so-called core CPI inflation was projected to have advanced 0.2% over the month, which would match May's gain.
Some economists viewed the moderate increase in the core CPI as a positive sign. Though the renewed hostilities between the U.S. and Iran have raised oil prices, they remain below the levels reached in late April and early May.
"Most important for Fed officials is core inflation which is not directly affected by oil prices," said Andrew Hollenhorst, chief U.S. economist at Citigroup. "One concern was that higher energy costs would 'pass-through' to core inflation, but aside from somewhat stronger airfares, which should now reverse, higher oil prices did not significantly boost core."
Other economists were, however, less sanguine saying the moderate core CPI readings were an indication of sticky underlying inflation that would keep a rate hike this year on the table, pointing to still elevated prices for inputs and longer supplier delivery times in business surveys. Producer price data has also suggested price increases are coming.
In June, the monthly core CPI was seen lifted by higher prices for services, hotel and motel rooms, related to the FIFA World Cup. A rebound in motor vehicle insurance is expected after dropping in May by the most since October 2020.
Moderate increases were expected in airfares and rents. Core goods inflation was likely flat over the month, with economists saying Apple AAPL.O price hikes late in June would likely show in July. They viewed the tariff pass-through as fading, though apparel prices likely rose and household furnishings rebounded.
"June's CPI report is unlikely to decisively lean toward or rule out the Fed tightening policy this year," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
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