The US Consumer Price Index fell in June for the first time in six years, while a key gauge of underlying inflation showed almost no change, easing pressure on the Federal Reserve to raise interest rates.

According to data released by the Bureau of Labor Statistics on Tuesday, the consumer price index fell 0.4% in June from the previous month, influenced by the largest drop in gasoline prices since 2022. Excluding food and energy, the index was flat month-on-month.

The report indicates that falling gasoline prices in June alleviated pressure on consumers as the energy shock from the Iran war moves past its most severe phase. With an interest rate decision meeting scheduled for the end of the month, the latest inflation data is likely to be welcomed by the Fed. However, renewed hostilities between the US and Iran, pushing oil prices higher again, could prolong the inflationary impact of the conflict.

Furthermore, while the monthly inflation data was moderate, the year-on-year figures continue to show elevated inflation: the overall CPI rose 3.5% from a year earlier, while the core measure increased 2.6%.

"This softness may prove temporary, fading as early as next month's report," said Omair Sharif, president of Inflation Insights LLC. "The data is good news for the Fed, but it's far from mission accomplished."

In prepared remarks for his congressional testimony on Tuesday, Federal Reserve Chair Kevin Warsh stated that the Fed has "zero tolerance" for persistently high inflation.

The data showed the core inflation measure was held down by a monthly decline in goods prices, including apparel and used vehicles.

A service-price metric that excludes housing and energy costs, which is closely watched by Fed officials, fell 0.2%, matching its largest decline since the onset of the COVID-19 pandemic. A record drop in motor vehicle insurance premiums since 2020 weighed on this measure.

Gasoline prices fell nearly 10%, while rents saw a slight increase. Grocery prices rose for a third consecutive month, influenced by higher costs for beef, eggs, and dairy. Hotel prices posted their largest drop in over a year after four months of increases. Restaurant prices saw only a modest rise.

Prices for computer software and accessories rose 2.3% from the previous month, with the year-on-year increase reaching a record 17.4%. Minutes from the Fed's June 16-17 policy meeting, released last week, reflected heightened concerns among policymakers about inflation, including scenarios where it remains elevated due to strong AI-driven demand, Middle East conflicts, and tariff policies.

A separate report released on Tuesday showed that real average hourly earnings in the US rose 0.1% from a year earlier, thanks to the drop in gasoline prices, following declines in the previous two months.