July 15, 2025

June 2025 Arizona Inflation Update

Introduction

Inflation as measured by the Consumer Price Index (CPI) for the Phoenix metro area rose 0.2% year-over-year in June, a decrease from 0.3% in April. The recently low inflation readings have coincided with slowing employment growth in the state.

Nationally, the rate of inflation is up since April (now +2.7% year-over-year, up from +2.4% last month). While inflation has remained above the 2.0% target for more than two years, June’s inflation rate is higher than March, April, and May, marking a slight reacceleration in national price growth.

Inflation and Federal Policy

While inflation in the Phoenix area has been below-target (2.0%) for 9 months now, nationally consumer prices have not grown slower than 2.3% (April 2025) since 2021. 

Despite this, in September 2024 the Federal Reserve initiated its first of three cuts to target interest rates. Not coincidentally, national inflation began growing again immediately thereafter. The Board has since paused further rate cutting, even as the inflation rate resumed its decline in February 2025

Since 2010, the rate of national inflation has followed trends in the federal deficit with a 12-24 month lag. Local inflation rates – like in Phoenix – are then subject to their own regional dynamics but move about the national rate. Today, the size of the national debt and persistent deficits make it more difficult for monetary policy – changes in target interest rates – alone to control inflation.

Permanently restoring inflation to its long-term trend and at or below its 2.0% target will require taming the large and persistent federal deficits. For context, the average annual federal deficit between 2020 and 2024 was $2.2 trillion; since 2020 the average inflation rate has been 4.2%. As of the most recent data, the annualized federal deficit for this year is $1.3 trillion, with the U.S. posting a budget surplus in the month of June for the first time since 2017. This is the second monthly fiscal surplus of 2025, so far.

The Federal Reserve was premature in its shift to a more accommodative monetary policy last year. Further reductions in target interest rates and other easing should depend on both sustained decreases in the rate of consumer price inflation and sustained reductions in federal deficits.