US inflation cooled in July, in line with market expectations. According to data released Wednesday by the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 0.1% month over month, after a 0.4% decline in June, bringing the annual rate to 3.4%, down from 3.5% the previous month.
Core CPI, which strips out volatile food and energy components, rose 0.2% in July, bringing the annual rate to 2.5%, the lowest since January-February of this year, when it touched a nearly five-year low. Here too, the figures matched economists' forecasts.
Energy and housing helped keep prices in check. Gasoline prices fell 2.9% in July, while the shelter index, which accounts for about one-third of the CPI basket, rose just 0.1%, held back by lower prices at hotels and other lodging. Grocery prices fell 0.1%: food inflation is running at 2.7% year over year, below the headline figure.
The trend reflects an easing of the energy shock tied to the war in the Middle East. The disruption of shipping through the Strait of Hormuz had pushed inflation to a three-year high earlier in 2026; the gradual progress of peace talks has since reduced pressure on energy prices, although negotiations remain bumpy.
The slowdown in price increases could ease pressure on the Federal Reserve to hike rates again. Fed Chairman Kevin Warsh has repeatedly stressed the central bank's commitment to bringing inflation back to the 2% target, after years of readings above it. Meanwhile, labor market data show wage growth at 3.2%, still trailing the pace of consumer prices.
For the US economy this is an encouraging sign, though cost-of-living concerns persist. "The economy isn't out of the woods from the threat that inflation poses for everyday Americans, but price pressures aren't hot to the touch either," wrote Christopher Rupkey, chief economist at FwdBonds.
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