U.S. consumer inflation eased more than anticipated in June, driven largely by a decline in energy prices amid a temporary reduction in tensions between the United States and Iran, according to government data released Tuesday. The Consumer Price Index (CPI) rose 3.5 percent year-over-year in June, down from 4.2 percent in May, marking the lowest inflation reading in three years. This drop came despite increases in housing and food costs, as falling energy expenses more than offset these gains.

The Labor Department report showed a 0.4 percent decline in overall CPI from May to June, marking the first monthly decrease since 2020. Core inflation, which excludes the more volatile food and energy sectors, increased by 2.6 percent year-on-year in June—also lower than the previous month’s figure.

Former President Donald Trump highlighted the report as a sign of progress, stating that prices were declining and predicting further reductions ahead of the November midterm elections. Analysts had forecasted a 3.8 percent annual inflation rate for June, per a survey of economists.

Despite the encouraging numbers, Federal Reserve Chairman Kevin Warsh cautioned against complacency during a House Financial Services Committee hearing. Warsh emphasized the Fed’s firm stance against persistent inflation, noting the central bank’s aim to end the multiyear surge in price growth and reach its long-term 2 percent target. “If we get policy right — and I can assure you we will — the inflation surge of the last five years will be a thing of the past,” Warsh said.

Warsh also addressed questions concerning potential political pressures on the Fed, especially from Trump, who appointed him. He reaffirmed his commitment to maintaining independence from politics in monetary policy decisions, stating that policymakers would continue to “follow the data” and exercise their “very best judgment” when adjusting interest rates.

Energy costs, particularly gasoline prices, dropped 9.7 percent month-over-month in June but remain elevated compared to last year. Price volatility in this sector followed escalating geopolitical tensions earlier in the year, including strikes by the United States and Israel on Iranian targets and Tehran’s response that restricted traffic through the Strait of Hormuz—a critical global energy transit route.

White House economic adviser Kevin Hassett characterized the inflation report as the most favorable in six years, downplaying concerns about disruptions from the Middle East conflict and describing the temporary spike in gasoline prices due to Tehran as merely “a hiccup.”

Economists expressed cautious optimism about the lower inflation reading. Kathy Bostjancic, chief economist at Nationwide, noted that the easing of underlying inflation trends provides the Federal Reserve with “breathing room” regarding future interest rate hikes but warned that volatile energy prices may sustain the likelihood of rate increases in the coming months. Bernard Yaros of Oxford Economics added that there was no clear evidence of inflation spreading more broadly across goods and services, and that effects from Trump-era tariffs and the expansion of artificial intelligence-related investments have been less prominent than some had expected.

With inflation pressures still a key concern, Fed officials and market participants are closely monitoring price trends and geopolitical developments that could influence energy costs and overall economic stability.