U.S. consumer prices fell 0.4% in June—the biggest monthly drop in four years—pulling annual inflation down to 3.5% from 4.2% in May.
Gas, clothing and used-car prices drove the decline, and underlying price pressures also cooled more than economists expected.
$700 billion in expected data-center spending this year is emerging as a new inflation risk, lifting prices for chips, processors and electricity and potentially keeping inflation elevated through year-end.
That could still pressure the Federal Reserve to raise rates later this year, even as the latest report offers consumers some relief.
Oil prices are already rising again after renewed U.S. attacks on Iran and a new Strait of Hormuz blockade, threatening to reverse some of June’s energy-driven easing.