No surprise that CPI fell in June, but PPI as well? Now that's interesting

We figured consumer inflation would show prices going down overall in June, due to a significant decline at the pump. But I don’t think we thought it would be this much.

The Consumer Price Index, released Tuesday, showed inflation declined 0.4% on a monthly basis in June, the largest single-month decline since April 2020. Annual inflation also eased to 3.5%, the government said, in the lowest yearly reading since March.

Economists surveyed by Bloomberg had expected inflation to fall just 0.1% from May and rise 3.8% from a year ago, a moderation from May's bruising report as gas prices eased thanks to a now-disintegrating ceasefire in the war with Iran.

Indeed, the index for energy prices tumbled 5.7% in June, while the gasoline index fell 9.7%, though both remain much hotter than a year ago. Food prices, meanwhile, ticked up 0.2%, with lettuce and fish costs driving higher.

"The renewed war in Iran will almost certainly push inflation back up. Relief could be short-lived. But this should give the Federal Reserve some time to see wait and see for awhile," Heather Long, chief economist at the Navy Federal Credit Union, posted on X.

On a "core" basis, stripping out volatile energy and food categories, price growth slid to 2.6% on an annual basis, and was flat for the month. Economists had seen inflation rising 0.2% from May and 2.8% from last year.

That core number will especially buy the Fed some time, since Fed Governor Christopher Waller indicated earlier in the week that stat would be a bigger guide into where things stood than the overall CPI number for June. And that flat reading meant that core inflation followed the overall CPI in having its rate go down vs May.

Digging into the CPI report, we see the moderating and declines in prices were in many areas.

The index for all items less food and energy was unchanged in June after rising 0.2 percent in May. The shelter index increased 0.1 percent over the month, the smallest 1-month change reported for that index since January 2021. The index for owners’ equivalent rent rose 0.2 percent in June, and the index for rent increased 0.1 percent. The lodging away from home index fell 2.3 percent over the month.

The motor vehicle insurance index declined 2.0 percent in June after falling 1.7 percent in May. The index for communication fell 1.5 percent over the month, and the index for apparel declined 0.6 percent. The used cars and trucks index fell 0.2 percent in June.

That was the surprising part, given that May’s core Producer Price Index rose by 0.8%. So are the businesses taking lower profits at this point? Or have those higher producer prices not made their way through, and July will see a return to the inflationary cycle?

Then the PPI report came out on Wednesday. We knew that gasoline fell significantly in June and that would show in the overall PPI number, but apparently the cost of other goods also were going down?

Final demand goods: The index for final demand goods moved down 1.4 percent in June, the largest decrease since falling 1.9 percent in July 2022. Leading the decline in June, prices for final demand energy dropped 6.4 percent. The index for final demand foods moved down 0.6 percent. Conversely, prices for final demand goods less foods and energy increased 0.2 percent.

Product detail: Nearly two-thirds of the June decline in the index for final demand goods can be traced to prices for gasoline, which dropped 12.0 percent. The indexes for diesel fuel, jet fuel, fresh vegetables (except potatoes), crude petroleum, and thermoplastic resins and materials also fell. In contrast, prices for plastic products advanced 1.6 percent. The indexes for residential electric power and for potatoes also increased.

The drop in wholesale food prices got extra attention from me – that’s not something we had seen recently, as the PPI for foods had gone up in 0.2% and 0.5% in April and May respectively. And as hinted above, there was a wide range of foods that had their prices fall at the wholesale level last month.

Change in PPI, June 2026
Grains -12.0%
Oilseeds -7.8%
Fresh/dry vegetables -6.0%
Fresh fruits/melons -2.2%
Processed chickens -2.2%
Processed turkeys -2.1%
Pork -1.9%
Eggs -1.7%
Beef/veal -1.5%

So we should see some relief in grocery prices for July and likely August. And if we don’t, we probably should be suspicious as to why not.

Intermediate producer prices also went down in June (-1.2%), their first decline since October, and a reversal from what we’d seen, as those had gone up by a total of 8.6% over the previous 3 months. It’s weird to me how those sizable intermediate increases from March through May didn’t translate into an increase in overall PPI in the final products for June, and I wonder who ends up losing as a result. Did we just have an odd blip before inflation comes back in July, especially with oil back up toward $80 a barrel? Or are there businesses that are losing out and will see their profits be severely reduced because they can’t pass on the higher costs from this Spring to their customers? I don't see a third option out there.

SThe declining prices of June will buy time for the Federal Reserve to figure out what things look like for the second half of 2026, so don’t count on any moves when the Fed meets on interest rates in 2 weeks. But June’s declines for both CPI and PPI leave me more confused than I was before this week, as this regression from the high inflation of the previous part of 2026 seems too good to be true (maybe literally?).