Dig Deeper: 

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• Much of the drop is due to inflation being so high a year ago, known as “base effects”, and the drop in gas prices.

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• On a monthly basis, inflation rose 0.2% from May to June, up slightly from the 0.1% rise from April to May

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Big Picture: Despite the progress, inflation remains well above the Federal Reserve’s  2% target, and the underlying data is more concerning. Core prices, which strips out volatile elements like food and energy, rose 4.8% on an annual basis and 0.2% from May to June.

Be Smart: 

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• The Fed looks more closely at core prices than the overall inflation number, which has been stuck around 5% since late 2021.

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• The drop in the headline inflation number will prompt many to say the Fed should stop raising rates, but the stickiness of the core data likely means the Fed will continue raising rates at its next meeting later this month.