A closely-watched report on US inflation showed consumer price increases cooled further during the month of June, according to the latest data from the Bureau of Labor Statistics released Thursday morning.

The Consumer Price Index (CPI) declined 0.1% over the previous month and increased just 3.0% over the prior year in June — a deceleration from May's flat month-over-month increase and 3.3% annual gain in prices. Both measures beat economist expectations of a 0.1% monthly increase and a 3.1% annual gain.

Notably, this is the first time since May 2020 that monthly headline CPI came in below 0%. It's also the slowest annual gain in prices since March 2021.

On a "core" basis, which strips out the more volatile costs of food and gas, prices in June climbed 0.1% over the prior month and 3.3% over last year — cooler than May's data. Economists had expected a 0.2% monthly uptick in core prices and a 3.4% year-over-year increase.

Markets jumped on the heels of the report, with the 10-year Treasury yield (^TNX) falling about 9 basis points to trade around 4.2%.

Inflation has remained stubbornly above the Federal Reserve's 2% target on an annual basis. But recent economic data has helped fuel a narrative that the central bank should cut rates sooner than later.

Immediately following Thursday's encouraging inflation data, markets were pricing in a roughly 87% chance the Federal Reserve begins to cut rates at its September meeting, up from 75% a day prior, according to data from the CME Group.

The data adds onto other rate cut signals across the labor market and economy.

On Friday, the Bureau of Labor Statistics showed the labor market added 206,000 nonfarm payroll jobs last month, ahead of the 190,000-plus expected by economists. However, the unemployment rate unexpectedly rose to 4.1%, up from 4% in the month prior. It was the highest reading in almost three years.

Notably, the Fed's preferred inflation gauge, the so-called core PCE price index, showed inflation eased in May. The year-over-year change in core PCE came in at 2.6% over the prior year in May, in line with estimates and the slowest annual gain in more than three years.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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