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
Story comments
Loading comments…