Resurgent inflation eased in June as gasoline prices declined over the month, though uncertainty over the trajectory of oil prices and Iran war hostilities have reignited in recent weeks.

The consumer price index (CPI) fell 0.4% across the all-items index on a seasonally adjusted basis last month, compared to 0.5% growth in May, the U.S. Bureau of Labor Statistics (BLS) reported Tuesday.

On an annual basis, the CPI rose 3.5% compared to 4.2% in May, which was also below April’s annual pace of 3.8%.

The BLS noted that the monthly contraction, which was well below consensus estimates, was the largest single-month decline since April 2020, when the CPI fell 0.8%.

Economists surveyed by Reuters, The Wall Street Journal and Bloomberg separately projected a pullback in annual inflation to 3.8%, following the return of oil flows through the Strait of Hormuz in mid-June. But inflation ultimately came in cooler than expected.

May’s inflation print showed higher energy and transportation costs had not bled into broader consumer prices hikes in core CPI, which strips out volatile food and energy prices, and that containment continued in June.

Compared to forecasts of 2.8%, core inflation rose just 2.6% annually in June following 2.9% growth in May and a 2.8% increase in April. Core inflation posted no monthly gains, however, compared to 0.2% growth in May and a 0.4% rise in April, as the energy index that rose 3.9% in May plunged 5.7% in June.

For Sam Williamson, senior economist at First American Financial Corp., the core CPI reading was the “bigger story” than the cooling headline inflation.

“Stripping out the volatile food and energy categories, core CPI held flat — its weakest reading since May 2020 — as prices fell for auto insurance, apparel and used cars. Even shelter, long the most stubborn component, cooled to a 0.1% gain, its smallest since January 2021,” Williamson said in emailed commentary. “Taken together, the report offers reassurance that inflation is still headed in the right direction — despite some bumps along the way.”

The White House and Iran announced a memorandum of understanding on June 17 that extended a fragile ceasefire first announced in April, freeing oil, natural gas and cargoes of other resources like aluminum and helium to flow through the Strait of Hormuz.

The development eased energy prices and headline concerns about resurgent inflation, which has jumped amid a global energy and supply shock triggered by the war. But renewed fighting between the U.S. and Iran after the July 4 holiday weekend revived concerns of a protracted entanglement.

Months of escalating inflation had fueled bets that the Federal Reserve may have to raise interest rates by the end of 2026 to bring down inflation, which has been above the bank’s stated 2% target for more than five years.

While Williamson doesn’t believe the encouraging June CPI figures will move the needle on their own, “it does help assuage some concerns about potential tightening” at the upcoming Fed meeting on July 28-29.

“For homebuyers, the key takeaway is less about relief on the horizon and more about the absence of a new setback,” Williamson stated. “Because mortgage rates often take their cues from the inflation outlook, a hotter report could have pushed borrowing costs higher and stretched affordability even further. Instead, today’s data suggest rates aren’t likely headed higher in the near term.”