Expectations called for 3.8% in the consumer price index last month on an annual basis; consumer prices posted their sharpest drop in more than six years in June as a steep decline in energy prices offered at least temporary relief from this year's inflation surge; annual inflation rose 4.2% in May; US interest rate stands at 3.75%

US inflation fell unexpectedly to 3.5% on an annual consumer price index basis. Expectations had pointed to 3.8% for the consumer price index last month, after annual inflation rose 4.2% in May.

Consumer prices recorded their sharpest decline in more than six years in June, as a steep drop in energy prices provided at least temporary relief from this year's inflation surge, the Bureau of Labor Statistics reported on Tuesday.

The consumer price index, a broad measure of goods and services costs across the US economy, came in below expectations on all counts. The index fell 0.4% on a seasonally adjusted basis during the month, bringing the annual inflation rate to 3.5%. Economists surveyed by Dow Jones had forecast a 0.2% drop and 3.8% inflation.

Core inflation, which excludes food and energy, remained unchanged during the month, with its 12-month rate at 2.6%. Consensus forecasts had called for gains of 0.2% and 2.9%, respectively.

US inflation accelerated in May due to the surge in oil prices triggered by the war in Iran. It climbed above 4% for the first time in three years. The US consumer price index rose 0.5% on a monthly basis in May. The inflation rate jumped to 4.2% versus the 3.8% annual pace recorded in April. The figures, which aligned with analyst expectations, mark the highest inflation level since April 2023, when inflation stood at 4.9%.

Early in July, June employment data for the US showed a sharp drop in job additions that missed forecasts. The American economy added only 57,000 new jobs in June, while economists had projected 110,000. In addition, the May figure was revised lower from the original 172,000 to 129,000. On a positive note, the unemployment rate fell one-tenth of a percentage point to 4.2%.

About a month ago, the new chair's first interest-rate decision arrived without surprise: the US central bank, the Federal Reserve, left rates unchanged at 3.75% in line with market forecasts. The decision came at the first meeting of senior Fed officials under new Chair Kevin Warsh, who took office several weeks earlier.

The Fed's Federal Open Market Committee voted unanimously to keep rates at the current level, where they have stood since the last decision of 2025. Alongside the decision, senior Fed officials raised their inflation forecast, lowered their growth and unemployment outlooks, and removed the prior projection for a rate cut this year, leaving open the possibility of a rate hike later.