US inflation cooled slightly to 3.4% in July but prices still elevated

US consumer prices cooled slightly in July as the annualized inflation rate dipped down to 3.4%, though prices still remain higher than levels seen before the war with Iran.

Though inflation decreased 0.7% in June during a brief ceasefire between the US and Iran that brought energy prices down, consumer prices have remained elevated. Price increases hit a three-year high in May, with annual inflation reaching 4.2%.

Brent crude, the international benchmark for oil prices, dipped in June when the US and Iran reached a peace agreement. Prices then rose again when that deal collapsed in July.

Energy prices are still far lower than their peak in late April, but remain above prewar levels. Gas at the pump is an average $4 a gallon in the US, according to the AAA, more than $0.85 from a year ago.

Meanwhile, the latest negotiations to end the war in the Middle East and reopen the strait of Hormuz, a vital waterway through which a fifth of the world’s oil passes through, have reached an impasse. Donald Trump has said that Iran must agree to compensate for the past deaths of American soldiers and Iranian civilians in order to reach a deal. Iran’s leaders are unlikely to agree to those demands.

Wednesday’s release also follows a disappointing jobs report that showed American employers unexpectedly lost 23,000 jobs in July. Labor market gains for May and June were also revised sharply down by a combined 103,000, painting a weaker-than-expected picture of the state of US employment.

Despite ongoing economic instability, the latest inflation data is likely to ease pressure on the US Federal Reserve at its next rate-setting meeting in September. Last month, Fed officials voted 9-3 to maintain rates – the first time in a decade that three board members shared dissent over a policy decision.

The Fed chair, Kevin Warsh, has vowed to deliver price stability and bring inflation to the Fed’s target of 2%.

Typically, the central bank fights inflation by raising rates and addresses unemployment by lowering them. But Warsh also appeared open to other options. During the Fed’s last meeting, he said that while interest rates could be part of the solution, it would not be used “in isolation”. Warsh has also emphasized that he doesn’t want the central bank to make decisions based on single monthly reports.

But some bank presidents have been amplifying calls for rate hikes. Lorie Logan, one of the three bank presidents who dissented in the July meeting, argued that inflation does not appear to be moving toward the Fed’s target.

“More than five years after the post-pandemic surge, prices have continued to rise too rapidly,” she said following her dissent. “Every month of above-target inflation compounds the strain on the budgets of American families and businesses.”

The Guardian wp:paragraph