June CPI dips to 3.5% but rebound looms as Iran deal collapses
A short-lived US-Iran ceasefire drove annual US inflation down to 3.5% in June, but the deal's collapse and surging oil prices complicate the Federal Reserve's upcoming rate decision.
Annual inflation cooled to 3.5% in June, retreating from a three-year high of 4.2% in May. The consumer price index fell 0.8% month-over-month, marking the steepest single-month decline since April 2020.
The reprieve was driven almost entirely by a temporary US-Iran peace agreement that slashed energy costs. Gasoline prices dropped 9.7% in June, while fuel oil fell 9.2%, offsetting rising prices in food, shelter and utilities.
That ceasefire has since collapsed, and renewed strikes have sent energy costs climbing again. Brent crude surged to $80 on Monday, rebounding sharply from a July low of $67. President Trump said the Strait of Hormuz will remain open "with or without Iran" and pledged to reinstate a blockade on Iranian ports.
The resulting energy volatility is forcing corporate price adjustments. Delta Air Lines disclosed in recent quarterly earnings that it has passed 60% of its additional fuel costs onto consumers and expects elevated airfares to persist.
Stripping out volatile food and energy, core inflation held steady at 2.6% year-over-year. The flat month-over-month reading suggests underlying price pressures are not yet accelerating, but the figure remains well above the Federal Reserve's 2% target.
Elevated prices are weighing heavily on consumers. A Harris-Guardian poll found that 95% of Americans believe the country is in an affordability crisis, though Trump has said he is not concerned about the inflation figures.
The Federal Reserve will weigh these conditions at its July 28-29 meeting against a resilient labor market that added an average of 111,000 jobs per month from April through June.
New Fed Chair Kevin Warsh is scheduled to testify before the House Financial Services Committee on Tuesday. In prepared remarks, he signaled a firm stance, stating the central bank has "no tolerance for persistently elevated inflation" and a duty to take a "fresh look at current practices to make sure we are serving our objectives."
