Key facts
- US inflation rate eased to 3.4% in July.
- Core inflation rose to 2.5% year-over-year.
- Gasoline prices declined 3% in July but are up 15% annually.
- US employers lost 23,000 jobs in July, with revisions showing fewer gains previously.
- Real wage gains decreased by 0.2% after inflation adjustments.
- The Federal Reserve is considering further interest rate hikes.
US consumer prices showed a slight easing in July, with the annual inflation rate dipping to 3.4%, down from 4.2% in May. However, prices remain elevated compared to pre-war levels, influenced by ongoing geopolitical tensions and a stalled peace agreement between the US and Iran that impacts energy prices.
Core inflation, excluding volatile energy and food prices, saw a modest increase to 2.5% year-over-year and a 0.2% rise from the previous month. While the overall index for food and services like shelter, transportation, and medical care rose 3% annually, grocery prices experienced a slight decline. The energy index also fell month-over-month, with gasoline prices down nearly 3%, but they remain about 15% higher than a year ago.
The geopolitical situation, particularly the stalled negotiations to end the war in the Middle East and reopen the Strait of Hormuz, continues to impact energy prices. Brent crude saw a dip in June following a peace agreement, but prices rose again in July when the deal collapsed. Donald Trump has indicated that Iran must agree to compensate for past American soldier and civilian deaths for a deal to be reached.
This inflation data follows a weaker-than-expected jobs report, which showed a loss of 23,000 jobs in July and significant downward revisions to May and June employment gains. Real wage gains for hourly employees were also negatively impacted, decreasing by 0.2% after adjusting for inflation.
The Federal Reserve is currently weighing its next move on interest rates. Some Fed bank presidents, like Lorie Logan, are pushing for rate hikes, citing persistent above-target inflation. Fed Chair Kevin Warsh has emphasized a commitment to price stability and a data-dependent approach, suggesting interest rates would not be used in isolation to combat inflation.