Key facts
- US inflation cooled to 3.4% year-over-year in July, down from 3.5% in June.
- Core inflation increased slightly to 2.5% annually and 0.2% monthly.
- Energy prices declined in June but rose again in July following the collapse of a US-Iran peace deal.
- US employers lost 23,000 jobs in July, and wage gains were outpaced by inflation.
- Federal Reserve officials are split on the need for further interest rate hikes.
US consumer prices rose 3.4% in July from a year ago, a slight decrease from 3.5% in June, as falling energy and grocery costs provided some relief. However, prices remain significantly higher than before the conflict with Iran began, posing challenges for consumers and the White House.
Core inflation, which excludes volatile food and energy prices, increased slightly to 2.5% year-over-year and 0.2% month-over-month. This indicates that underlying price pressures are still present. While grocery prices saw a slight decrease, with lettuce prices falling 16% over the past year, gasoline prices remain about 15% higher than a year ago, averaging $4 a gallon nationwide.
The energy index declined from the previous month, with gasoline falling nearly 3%, but is still about 15% higher than the year before. Brent crude prices dipped in June following a peace agreement between the US and Iran, but surged again in July when the deal collapsed. Despite being lower than their late April peak, energy prices remain above prewar levels.
Negotiations to end the war in the Middle East and reopen the Strait of Hormuz have stalled. Donald Trump has indicated that Iran must agree to compensate for past deaths of American soldiers and Iranian civilians to reach a deal, a demand unlikely to be met by Iranian leaders.
The inflation data follows a disappointing jobs report showing a loss of 23,000 jobs in July, with downward revisions to previous months' gains. Wage gains for hourly employees were erased by inflation, decreasing by 0.2% after adjusting for prices.
The Federal Reserve is currently divided on its next monetary policy move. Roughly half of the rate-setting committee members support raising interest rates this year, while the other half believe current rates are sufficient to gradually bring inflation down to the 2% target. Fed Chair Kevin Warsh has emphasized a commitment to price stability and stated that interest rates would not be used in isolation to combat inflation, also cautioning against making decisions based on single monthly reports. However, some Fed bank presidents, like Lorie Logan, have expressed concerns that inflation is not moving quickly enough toward the target, citing the compounding strain on families and businesses.