June CPI: Core Inflation Cools, But Headline Volatility Threatens Labor Momentum

June CPI: Core Inflation Cools, But Headline Volatility Threatens Labor Momentum

Inflation cooled significantly in June to 3.5% year-over-year growth. Following a three-year high in May, we just saw the largest one-month CPI decrease in over six years, at -0.4%. This cooling was primarily driven by a sharp drop in energy prices, which served as the largest contributor to the overall decline. 

Crucially, core inflation (all items less food and energy) was completely flat for the month, bringing the annual core rate down to 2.6%. This signals that broader, underlying inflationary pressures are genuinely stabilizing.

However, we aren't out of the woods. Energy prices are already ticking back up in early July, suggesting that headline inflation will remain volatile in the coming months as the war in Iran continues. For the labor market, this ongoing volatility is a risk. Fluctuating inflation could easily trigger renewed hesitancy among both employers and workers, threatening to lock the labor market back into the stalemate we saw for much of 2025, just as we were catching the tail of rising momentum.