Inflation cooled sharply in June, delivering the biggest one-month drop in consumer prices since the early days of the pandemic as energy costs briefly fell after the U.S. and Iran signed a memorandum of understanding aimed at cooling the ongoing war.

The Consumer Price Index eased to 3.5% from a year earlier, while prices fell 0.4% from May, a bigger drop than economists had expected.

“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.

The drop was driven largely by energy, with gasoline prices pulling back after weeks of chaos in global markets.

Other categories also helped bring the headline number lower, including apparel, used cars and trucks, and housing.

But the report was not all good news for American families still getting squeezed at checkout counters and restaurant tables.

Food prices rose in June.

“Four of the six major grocery store food group indexes increased in June,” BLS said in its report.

The cost of eating out also moved higher.

The “food away from home” category rose 0.2% in June, while “The index for full service meals rose 0.4%,” BLS added.

Core inflation, which strips out food and energy, was unchanged for the month.

That was a better reading than another increase, but it also showed that the price problem has not fully disappeared outside volatile energy markets.

The White House seized on the report as proof that President Donald Trump had been right to argue that more traffic through the Strait of Hormuz and lower oil prices would put downward pressure on inflation.

Still, the relief may not last.

The report does not capture the renewed jump in energy prices that began this week after fresh tensions in the Persian Gulf.

Oil prices have already climbed around 15% so far this week, raising the risk that gas prices could move higher again in the coming days.

Critical oil storage hubs have also been drawn down in an effort to keep prices contained, but those facilities are now at decades-low levels.

NEC Director Kevin Hassett on the June CPI data: “It’s absolutely the best inflation report we’ve seen in about 6 years… If you look at the core, it’s all the way down, year-over-year, to 2.6%, which is just about where the Fed expects it to be.” pic.twitter.com/R92Kc5ZBZX

— Rapid Response 47 (@RapidResponse47) July 14, 2026

Refilling them with hundreds of millions of barrels could add even more upward pressure on prices.

At the same time, the massive buildout of artificial intelligence systems and data centers is creating another inflation headache.

Tech giants including Microsoft, Amazon, Google and Meta are racing to buy up memory and other key components needed to power AI infrastructure.

With only a handful of major global companies producing that hardware, prices are surging.

Apple raised prices last month on 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.”

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In Tuesday’s inflation report, the “computer software and accessories” category jumped 2.3% from May to June.

Prices in that index have soared 17.4% from a year earlier.

Federal Reserve Chairman Kevin Warsh made clear that policymakers are not ready to declare victory.

In testimony released alongside the inflation report, Warsh said Fed policymakers “have no tolerance for persistently elevated inflation.”

Warsh added that the Fed shares “a resolute commitment to restoring price stability.”

For consumers, June brought a rare bit of breathing room.

But between rising food costs, another oil spike and the AI boom driving up tech prices, the inflation fight is not over.

Prices finally made their biggest move since 2020.

Now the question is whether Washington can keep them from snapping right back.

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