Inflation cools to 3.5% in June in relief brought by brief US-Iran deal

• Brent crude oil hit $80 per barrel after falling to $67 earlier in July, driven by renewed U.S.-Iran hostilities and Trump's announcement of a blockade on the Strait of Hormuz, through which a fifth of global oil and gas passes
• Core inflation (excluding food and energy) decreased to 2.6%, but headline inflation remains well above the Federal Reserve's 2% target, while the labor market added an average of 111,000 jobs monthly from April to June
• A Harris-Guardian poll shows 95% of Americans believe the country is in an affordability crisis, with industries like airlines passing on 60% of extra fuel costs to consumers through higher airfares

Summary

U.S. inflation cooled to 3.5% annually in June 2026, down from a three-year high of 4.2% in May, according to Bureau of Labor Statistics data. The decline was attributed to a brief US-Iran ceasefire that temporarily reduced energy prices. Core inflation, excluding volatile food and energy costs, decreased slightly to 2.6%.

Key Data Points:

• June CPI: 3.5% year-over-year
• May CPI: 4.2% (three-year high)
• Core inflation: 2.6%
• Brent crude: $80 per barrel (up from recent low of $67 in early July)
• Gas prices: $3.87/gallon national average, up $0.70 from prior year
• Job growth: Average 111,000 jobs added monthly from April-June

Market Implications:

Renewed US-Iran hostilities have sent energy prices surging again. President Trump announced a blockade of Iranian ports and the Strait of Hormuz, through which 20% of global oil and gas flows. This has pushed Brent crude back to $80, reversing earlier relief.

Higher energy costs are impacting other sectors, particularly travel. Delta Airlines reported passing 60% of increased fuel costs to consumers through higher airfares in quarterly earnings.

Fed Outlook:

The Federal Reserve will consider both inflation and labor market data at its July 28-29 meeting. Inflation remains well above the Fed's 2% target. Public sentiment shows 95% of Americans believe the country faces an affordability crisis.

Despite elevated inflation, the labor market remains relatively stable, presenting a complex policy decision for the central bank.