Exponential Technology’s CPI First Forecast model for June 2025 projected a headline consumer price index (CPI) increase of +0.2% month-over-month. However, the actual CPI figure released this morning came in at +0.3% month-over-month, representing a modest but notable miss. The primary source of this deviation was the gasoline category, where our model predicted a decline of 0.38% versus an actual increase of 1%.

This discrepancy can be traced to a significant late-month event that our model—by design—could not capture. Our June CPI forecast was finalized and published on June 17, based on data from the first three weeks of the month. At that time, energy prices were trending lower compared to May, and there was no indication of an impending spike. However, on June 21, the US conducted an airstrike on Iran, triggering a temporary but sharp increase in global energy prices, particularly for gasoline. This geopolitical shock occurred after our forecast window had closed, meaning our model did not—and could not—account for its inflationary impact.

In the days following the event, energy prices, which had been negative for the month up to that point, reversed course and turned positive, contributing significantly to the higher-than-expected CPI reading. This underscores a key limitation of any model that relies on partial-month unforeseen, late-month events can lead to forecast errors, especially in volatile categories like energy.

It is important to note that the spike in gasoline prices was short-lived. Since the June 21 event, prices have retreated to their previous levels, and compared to previous summers, current gasoline costs remain relatively low. This suggests that the June CPI surprise was driven more by a temporary geopolitical shock than by underlying inflationary pressures in the energy sector.

Looking ahead, this episode highlights both the strengths and the challenges of real-time economic forecasting. While our model continues to deliver timely and generally accurate insights, events outside the forecast window—particularly those with immediate market impacts—can lead to deviations. We are exploring ways to enhance our framework, such as incorporating real-time event monitoring, to better anticipate such shocks and further improve forecast accuracy.

In summary, the June CPI miss was primarily due to an unanticipated late-month surge in gasoline prices following a geopolitical event, a factor outside the scope of our current forecasting window. As energy prices have since normalized, the broader inflationary picture remains subdued, especially compared to previous years. Exponential Technology remains committed to refining our models to provide clients with the most reliable and actionable economic intelligence, even in the face of unpredictable global events.