US inflation cooled slightly to 3.4% in July but prices still elevated

A driver refuels a vehicle in Atlanta, Georgia. Oil prices have risen after a peace deal with Iran collapsed in July. Photograph: Bloomberg/Getty ImagesView image in fullscreenA driver refuels a vehicle in Atlanta, Georgia. Oil prices have risen after a peace deal with Iran collapsed in July. Photograph: Bloomberg/Getty ImagesUS economyUS inflation cooled slightly to 3.4% in July but prices still elevatedEnergy is cheaper than at its peak in late April, but gas is still nearly $1 a gallon more expensive than before the Iran war

US consumer prices cooled slightly in July as the annualized inflation rate dipped down to 3.4%, though prices still remain higher than levels seen before the war with Iran.

Though inflation decreased 0.7 percentage points in June during a brief ceasefire between the US and Iran that brought energy prices down, consumer prices have remained elevated. Price increases hit a three-year high in May, with annual inflation reaching 4.2%.

Core inflation – a key measure that excludes volatile energy and food prices – increased slightly to 2.5% compared with last year, and increased at a modest 0.2% since last month.

The overall index for food and services, including shelter, transportation and medical care, rose 3% each compared with last year, though grocery prices fell slightly. The price of lettuce fell 16% over the last year as it continues to be linked to the cyclosporiasis outbreak.

The energy index declined slightly from the previous month, with gasoline falling nearly 3% over the last month, but still sitting about 15% higher than the year before. Brent crude, the international benchmark for oil prices, dipped in June when the US and Iran reached a peace agreement. Prices then rose again when that deal collapsed in July.

Energy prices are still far lower than their peak in late April, but remain above prewar levels. Gas at the pump is an average $4 a gallon in the US, according to the AAA, more than $0.85 up from a year ago.

Meanwhile, the latest negotiations to end the war in the Middle East and reopen the strait of Hormuz, a vital waterway through which a fifth of the world’s oil passes through, have reached an impasse. Donald Trump has said that Iran must agree to compensate for the past deaths of American soldiers and Iranian civilians in order to reach a deal. Iran’s leaders are unlikely to agree to those demands.

Wednesday’s release also follows a disappointing jobs report that showed American employers unexpectedly lost 23,000 jobs in July. Labor market gains for May and June were also revised sharply down by a combined 103,000, painting a weaker-than-expected picture of the state of US employment.

Wage gains for hourly employees were erased by inflation, according to the latest data, decreasing by 0.2% after adjusting for inflation.

The latest consumer pricing data comes as the US Federal Reserve weighs whether to increase rates to tamp down persistent inflation. Last month, Fed officials voted 9-3 to maintain rates – the first time in a decade that three board members shared dissent over a policy decision. Another round of inflation and employment data will be released before the central bank meets again in September.

Despite ongoing economic instability, the latest inflation data is likely to ease pressure on the Fed to raise rates.