US inflation slows to 3.4% in July as energy prices stabilize

United States annual consumer inflation slowed slightly to 3.4% in July 2026, down from 3.5% in June, as a 1.5% monthly drop in energy prices helped cool broader price pressures. The core CPI, which excludes food and energy, also eased to 2.5% annually. This moderate inflation reading, combined with an unexpected loss of 23,000 jobs in July, has led financial markets to sharply reduce the probability of a Federal Reserve interest rate hike at the upcoming September meeting. However, ongoing volatility from the war on Iran and disruptions in the Strait of Hormuz continue to threaten energy price stability.

July CPI inflation data

• ▪On an annual basis, the United States inflation rate slowed to 3.4% in July 2026, down from 3.5% in June 2026.
• ▪The United States Consumer Price Index rose 0.1% in July 2026 on a seasonally adjusted monthly basis, matching Dow Jones consensus forecasts.
• ▪The United States core Consumer Price Index, which excludes volatile food and energy costs, rose 0.2% month-over-month and 2.5% year-over-year in July 2026.
• ▪The shelter index rose 0.1% in July 2026, accounting for approximately two-thirds of the monthly headline Consumer Price Index increase.

Energy price stabilization

• ▪United States gasoline prices fell by nearly 3% in July 2026, though the national average remained above $4 per gallon as of August 12, 2026.
• ▪United States energy prices fell 1.5% in July 2026 following a 5.7% decrease in June 2026, registering back-to-back monthly declines.
• ▪Despite monthly declines, the United States energy sector saw an annual cost increase of approximately 14.7% to 15% in July 2026.

Federal Reserve rate hike outlook

• ▪The United States economy unexpectedly lost 23,000 jobs in July 2026, which combined with stable consumer prices to reduce the perceived urgency for a rate hike.
• ▪At its July 2026 meeting, the Federal Open Market Committee voted 9-3 to hold its key interest rate steady at approximately 3.6%, with three dissenters supporting a hike.
• ▪Following the July 2026 inflation report, traders lowered the probability of a Federal Reserve interest rate hike at the September 2026 meeting to between 36% and 42%.

Iran war oil disruption

• ▪Crude oil and gasoline prices fell early in July 2026 amid hopes of a ceasefire in Iran, but prices reaccelerated in August 2026 after the agreement fell through.
• ▪Retaliatory actions by Tehran in the war on Iran virtually blocked the critical Strait of Hormuz, through which one-fifth of global energy supplies transit.
• ▪United States consumer inflation surged from 2.4% in February 2026 to a three-year high of 4.2% in May 2026 after President Donald Trump launched a war on Iran.

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