Inflation Eases to 3.4% in July but Prices Stay Elevated

U.S. consumer prices cooled slightly in July, with the annual inflation rate dipping to 3.4%, according to data released Wednesday. Prices nonetheless remain well above the levels recorded before the war with Iran.

Inflation had fallen 0.7% in June during a brief cease-fire between the United States and Iran that pushed energy prices lower. Price increases hit a three-year high in May, when annual inflation reached 4.2%.

Core inflation, which excludes volatile food and energy costs, rose slightly to 2.5% from a year earlier and increased 0.2% from the previous month.

The indexes for food and for services — including shelter, transportation and medical care — each rose 3% from a year earlier, though grocery prices fell slightly. Lettuce prices dropped 16% over the past year as the vegetable continues to be linked to a cyclosporiasis outbreak.

The energy index declined slightly from June, with gasoline falling nearly 3% over the month. Even so, gasoline remains about 15% higher than a year ago. Brent crude, the international oil benchmark, dipped in June when Washington and Tehran reached a peace agreement, then rose again when the deal collapsed in July. Pump prices average $4 a gallon nationally, according to AAA, more than 85 cents above last year.

Negotiations to end the war and reopen the Strait of Hormuz, through which a fifth of the world's oil passes, have reached an impasse. President Trump has said Iran must agree to compensate for the past deaths of American soldiers and Iranian civilians to reach a deal, terms Iran's leaders are unlikely to accept.

The report follows a disappointing jobs report showing employers unexpectedly shed 23,000 jobs in July, with May and June gains revised down by a combined 103,000. Hourly wage gains were erased by inflation, falling 0.2% after adjusting for prices.

The Federal Reserve is weighing whether to raise rates. Last month officials voted 9-3 to hold, the first time in a decade that three board members dissented. Fed Chair Kevin Warsh has vowed to return inflation to the 2% target but said rates would not be used "in isolation." Lorie Logan, one of the dissenters, said prices "have continued to rise too rapidly."