The consumer price index (CPI) decreased to a yearly increase of 3 percent in June, dropping from 3.3 percent in May, marking the first month of declining prices since the pandemic began, according to a report from the Labor Department released on Thursday.

Additionally, the CPI fell by 0.1 percent in June, continuing a trend of stable or decreasing prices for the second consecutive month. Economists had anticipated a slightly higher annual inflation rate of 3.1 percent based on consensus projections.

This June reduction also represents the third consecutive month of decreasing annual rises in the CPI, a pattern that is also observed in the personal consumption expenditures (PCE) price index, another crucial indicator of inflation.

Economists responded positively to the news of falling prices. Jason Furman, a former chief economist at the White House, celebrated the data on social media, proclaiming, “Amazing inflation data for June!”

Excluding the typically fluctuating categories of energy and food, the so-called “core” CPI saw a modest increase of 0.1 percent in June, following a 0.2 percent rise in May and a 0.3 percent increase in April. Over the past three months, core CPI has risen by an average of just 1.1 percent, Furman highlighted.

In June, food prices rose by 2.2 percent annually, while energy prices increased by 1.1 percent. Shelter costs, a significant component of remaining inflation, showed a 5.2 percent annual increase but slowed to a 0.2 percent monthly rise, down from 0.4 percent in the preceding four months.

The decline in inflation enhances the likelihood that the Federal Reserve might reduce interest rates sometime this year, potentially as soon as later this month. Financial markets have been keenly anticipating such rate cuts, which are generally seen as stimulative for the economy.

Olu Sonola, an economist at Fitch Ratings, commented on the CPI report, stating, “This report aligns well with an inflation trajectory steadily returning to two percent. It’s another strong report overall, and the Fed will likely embrace it wholeheartedly.”

Sonola also noted that while confidence for initiating rate cuts is increasing, the Fed may await similar data in August and September before making a decision on the initial rate reduction.

Further influencing the rationale for rate cuts is the recent weaker employment data, with the unemployment rate rising to 4.1 percent in June from 4.0 percent in May and 3.9 percent in April, as highlighted by various analysts.