Plunging gas prices cool US inflation in June, but Middle East tensions threaten rebound

US inflation cooled sharply in June as gasoline prices tumbled, pulling the annual rate down to 3.5% from 4.2% in May, the Labor Department reported on July 14, 2026. The monthly decline of 0.4% marked the largest drop in four years, driven by falling gas, clothing and used-car prices. Core inflation—excluding food and energy—held steady at 0% for the month, while the annual core rate eased to 2.6% from 2.9%. Despite the progress, oil prices surged after the US renewed attacks on Iran and President Donald Trump announced a new blockade in the Strait of Hormuz, a critical oil transit route handling about one-fifth of global supply. The renewed Middle East tensions threaten to reverse recent gains by pushing energy costs back up. Federal Reserve policymakers remain split on interest-rate policy: minutes from their June 16–17 meeting show half favoring hikes by year-end to curb borrowing and spending, while the other half prefer to wait for clearer signs of cooling inflation. The Fed’s target for core inflation is 2%. Consumer sentiment remains fragile after five years of elevated inflation, posing political risks ahead of the midterm elections.