The news: Inflation cooled more than expected in June as lower energy prices contributed to the largest MoM decline in the consumer price index (CPI) since April 2020, per the US Labor Department.

• CPI declined 0.4% MoM, while the annual rate of inflation fell to 3.5% from 4.2% in May.
• Excluding food and energy, prices were flat MoM and 2.6% higher YoY.

The big picture: The June report’s positive headline numbers don't mean price pressures have eased for US consumers and businesses.

• Energy costs offer the clearest example of this dynamic: While prices fell 5.7% MoM, they remain sharply elevated YoY, with gas prices up 26.7% from June 2025.
• The grocery aisle offers little relief, with prices up for staples like milk (6.6%), fruit and vegetables (5.3%), meat (7.4%), and coffee (12.9%)—not to mention indulgences such as candy (9.6%) and cookies (5.1%).
• Prices for other necessities like shelter and transportation are also up YoY.

Inflation appears unlikely to dip below the Fed’s 2% target this year. Ongoing fluctuation in oil prices due to uncertainty around the US’ course of action in the Middle East could keep inflation elevated for some time. Economists now expect CPI to rise 3.4% this year, according to a July poll by The Wall Street Journal—up from a prior forecast of 3.2%—which could reflect the combined impact of supply shocks (both tariff- and Iran-related) and a massive increase in AI-related spending.

What this means for the consumer: With little price relief in sight, more consumers are struggling to manage higher costs for essentials. Even before the sharp spike in energy prices, many households were strained: Over 1 in 4 working-age adults struggled to pay back credit card debt used to purchase groceries in 2025, according to a December 2025 report from the Urban Institute. More recently, a Harris Poll for The Guardian found that over half of Americans are struggling to afford gas (52%) and groceries (51%).

Shoppers are responding in several ways:

Cutting back. Roughly 1 in 3 US adults have either reduced food spending or struggled to afford groceries due to inflation, according to KPMG’s Consumer Pulse Summer 2026 Survey. Shoppers are also pulling back on discretionary purchases.

Switching retailers. Retailers like Costco, Sam’s Club, Walmart, and Casey’s are luring shoppers seeking fuel discounts and other savings.

Limiting impulse buys. PepsiCo CEO Ramon Laguarta noted that sales at “impulse channels” like convenience stores and gas stations slowed in Q2 due to higher fuel prices and economic uncertainty.

Using debt and savings. Twenty-nine percent of US adults are using their credit cards more often to manage inflation-related challenges, while 28% have either tapped their savings or reduced the amount they save, per KPMG.

Implications for retailers: Years of persistent inflation have eroded retailers’ pricing power while increasing scrutiny of their pricing tactics. Some companies have worked the latter to their advantage: Retailers like Walmart and Kroger have used price cuts to generate media attention and reinforce their value proposition.

More broadly, retailers will have to walk a fine line as they manage higher operating costs—from tariffs, the war in Iran, and other factors—while also finding ways to offer households relief from rising living expenses.