Inflation fell in July as Iran war marches on

Inflation ticked down slightly in July, amid the resumption of strikes between the U.S. and Iran.

The consumer price index (CPI) increased 0.1 percent last month, according to data released Wednesday by the Bureau of Labor Statistics (BLS). The annual inflation rate declined to 3.4 percent, down from 3.5 percent in June. 

Both tallies landed at what economists projected ahead of the release.

While annual inflation, as measured by the CPI, decreased slightly from June to July, it remains above the Federal Reserve’s 2 percent target. Based on the personal consumption expenditures price index, the Fed’s preferred measure of prices, annual inflation was up 3.7 percent in June.

Federal Reserve Chair Kevin Warsh said last month the central bank “will not waver” in its quest to deliver price stability.

“There is no soft inflation target, there is no soft implicit target, not on this Committee’s watch.  There’s only a target, and it’s 2 percent,” Warsh told reporters after the Federal Open Market Committee (FOMC) kept interest rates steady for the fifth straight meeting. 

As of Wednesday morning, financial markets are setting the odds of the FOMC holding rates steady again at its next meeting in mid-September at 55.9 percent, according to the CME FedWatch tool, which tracks bets placed on future central bank decisions.

Year-over-year inflation, as measured by the CPI, had dipped from 4.2 percent in May after the U.S. and Iran agreed to a deal in mid-June to pause hostilities. But the agreement fizzled in July, as the Iranian military’s restrictions on shipping in the Strait of Hormuz and attacks on tankers sparked a litany of American strikes. 

U.S. forces have continued their blockade on Iranian ports, while traffic through the Strait of Hormuz remains well below pre-war levels.

West Texas Intermediate crude oil, the North American benchmark, was trading at roughly $83 as of Wednesday morning. U.S. gas prices also remain above $4 per gallon as of Wednesday, according to AAA.

Energy prices were down 1.5 percent in July, after falling 5.7 percent from May to June, the BLS said. Food prices also increased 0.1 percent in July, marking the fourth consecutive monthly rise.

Relative to July 2025, energy and food prices were up 14.7 percent and 3 percent, respectively. Annual energy inflation peaked at 23.5 percent in May, according to the CPI.

Core inflation, which does not include more volatile energy and food prices, rose 0.2 percent from June to July — for an annual rate of 2.5 percent.