Inflation eased in July as Middle East conflict resumed
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Inflation eased in July from a year earlier, with prices inching up slightly from the previous month after falling sharply in June, the Labor Department said Wednesday.
Why it matters: It is the first inflation report since fighting with Iran resumed in early July, though the data suggests inflation had yet to pick back up amid the renewed conflict.
By the numbers: The Consumer Price Index rose 3.4% in the 12 months ending in July, down from 3.5% in June.
- On a monthly basis, CPI advanced 0.1% compared with a 0.4% decline in June.
- Core CPI, which excludes energy and food prices, gained 2.5% in the year ending in July, easing some from 2.6% the prior month. On a monthly basis, it rose 0.2% after the index was unchanged in June.
Zoom in: Energy prices fell 1.5%, including a nearly 3% drop in gasoline prices, reflecting the cooling from the Middle East conflict during a brief ceasefire.
- There was also price relief across key consumer goods. Grocery prices rose by 0.1%, the slowest pace of gains since March, with prices for meat, fish, eggs and fruit declining outright.
- Airline fares, however, jumped 2.2% in July, while medical care rose 0.4% and used car and truck prices increased 0.4%.
The intrigue: The inflation data is among the key pieces of data that will help shape the Federal Reserve's decision on whether to raise interest rates in September. Officials will weigh stubborn price pressures against a weaker-than-expected labor market.
- Some Fed officials worry that years of successive supply shocks — including this year's Middle East conflict — alongside resilient economic demand (fueled by the AI buildout) could keep inflation elevated without further action from the central bank.
- Three Fed officials voted to raise rates at the central bank's July meeting.
What to watch: Fed chairman Kevin Warsh has played down the significance of any single inflation report.
- Warsh said last month that June's surprisingly cool reading did not factor much into the Fed's decision to keep rates steady last month. Warsh has said higher rates "could well be part of the solution" if inflation remains elevated.
The bottom line: July's inflation data offered some reassurance that price pressures were easing.
- But the report is backward looking: Renewed fighting in the Middle East risks another energy-driven inflation flare-up in the months ahead.
Editor's note: This story has been updated with additional details.
