U.S. consumer inflation slows to 3.5% in June as gasoline prices fall

Jul 14, 2026

U.S. consumer inflation slowed to 3.5% in June, driven by a 9.7% drop in gasoline prices. However, this relief may be short-lived as renewed U.S. military conflict with Iran is causing a sharp rise in global oil prices. President Trump has announced a new naval blockade in the Strait of Hormuz, and the Federal Reserve remains divided on whether to raise interest rates further to combat persistent inflation.

June inflation data

▪Excluding volatile food and energy, the core CPI rose 2.6% year-over-year in June, down from 2.9% in May.
▪The core CPI was unchanged on a monthly basis in June after gaining 0.2% in May.
▪The U.S. Consumer Price Index (CPI) rose 3.5% in the 12 months to June, a slowdown from the 4.2% increase in May.
▪On a monthly basis, consumer prices fell 0.4% in June from May, which was the largest monthly drop in four years.

Iran conflict impact

▪Renewed military conflict between the U.S. and Iran is causing global oil prices to rise, threatening recent progress on inflation.
▪President Donald Trump announced the U.S. would reinstate a naval blockade in the Strait of Hormuz, a route for about 20% of the world's oil.
▪President Trump also declared a 20% charge on all cargo being shipped through the Strait of Hormuz.
▪The price of a barrel of Brent crude oil, the global benchmark, hit $87 on July 14, 2026, an increase of almost $10 in 24 hours.
▪A recent truce between the U.S. and Iran collapsed after commercial tankers came under fire in the Strait of Hormuz.

Federal Reserve policy debate

▪The Federal Reserve's benchmark interest rate is currently in the 3.50%-3.75% range.
▪Minutes from the Federal Reserve's June 16-17 meeting show policymakers are divided on whether to raise interest rates again in 2026.
▪The Federal Reserve's inflation target is 2%, a level last consistently seen in early 2021.
▪Fed governor Christopher Waller warned that another "hot reading on core inflation" could necessitate a rate hike.

Political implications

▪Elevated inflation over the past five years is considered a political liability for President Trump and Republicans ahead of midterm elections.
▪The current inflation rate is still higher than the 2.4% rate that existed before the Iran war.

Price trends by sector

▪The costs of clothes and used cars also fell in June.
▪Spikes in gas and diesel prices have contributed to higher air fares and shipping costs for goods.
▪Prices for services, including restaurant meals, entertainment, and healthcare, are rising more quickly than before the pandemic.
▪The national average price for a gallon of gasoline rose to approximately $3.86-$3.87 by July 14, 2026, reversing earlier declines.
▪Gasoline prices decreased 9.7% in June, which was the primary driver of the inflation slowdown.