For one brief, shining moment on Tuesday morning, the economic news was actually good. Then, roughly in the same news cycle, Donald Trump announced he was reinstating a military blockade of the Strait of Hormuz and slapping a 20% fee on cargo ships passing through it, which is one of the more creative ways a sitting president has ever torched his own positive headline.
The Good News, While It Lasted
According to Labor Department data released Tuesday, the Consumer Price Index rose at an annual rate of 3.5% in June, down from 4.2% in May. CBS News reports that economists polled by FactSet had predicted 3.9%, so this was a genuine beat, the kind that usually gets a president on television taking credit for things he had nothing to do with.
The main driver was energy. Gasoline prices fell 9.7% in June from the month before, the Bureau of Labor Statistics said, which marked the largest single-month decline since April 2020. Core CPI, which strips out food and energy, came in at 2.6% annually, also below expectations. After three consecutive months of increases that pushed inflation to its highest point in more than three years, May is looking like it might have been the peak. Oxford Economics said exactly that in a report published Tuesday.
Yes, There Is a Catch
Here is the thing about a CPI report: it measures what prices did last month. It does not measure what prices are doing right now, today, while you are reading this. And right now, today, the situation is considerably worse than the Labor Department's tidy June numbers suggest.
Tensions between the U.S. and Iran have flared since the two countries signed a ceasefire memorandum of understanding last month. Both are jockeying for control of the Strait of Hormuz, through which a significant chunk of the world's oil supply passes. On Tuesday, CBS News reports, the price of Brent crude shot up to a one-month high of more than $86 a barrel after Trump announced the U.S. would reinstitute a military blockade of the strait and impose a 20% fee on all cargo shipments transiting it. The national average for gasoline sat at $3.86 a gallon Tuesday, per AAA. That is down from a peak above $4.50 in May. It is also nowhere near the sub-$3-a-gallon level from before the war started.
What the Experts Are Telling You to Worry About
Markets analyst Nic Puckrin, a former Goldman Sachs analyst, put it plainly in an email to CBS News: "Oil and gasoline prices, the main reason inflation eased in June, have started to edge back up on renewed US-Iran tensions, but the CPI won't reflect this for another month." Which is a polite way of saying: do not get used to this.
Goldman Sachs analysts, writing before Tuesday's CPI release, were even more direct. "A serious re-escalation of the conflict would threaten to revive the key upside risk to inflation and raise the odds of rate hikes," they said in a research note. Rate hikes. As in, the Federal Reserve, which has been sitting on its hands waiting for inflation to cool, would have fresh reason to tighten. As in, mortgages, car loans, and credit card debt all get more expensive. As in, the June CPI report would age about as well as leftover fish.
The Strait of Hormuz Is Not a Rounding Error
It is worth being clear about what Trump actually did here, because the words "military blockade" and "20% cargo fee" can blur together into background noise if you let them. The Strait of Hormuz is the narrow waterway between Iran and the Arabian Peninsula. About 20% of the world's traded oil moves through it. A blockade does not just affect Iran. It affects global energy supply, which affects every economy on the planet, which affects the price of basically everything.
The 20% cargo fee is its own creature entirely. Unilaterally taxing ships transiting an international waterway is the kind of move that generates emergency calls from allies, legal challenges under maritime law, and, yes, commodity price spikes. Brent crude moving to $86 a barrel on the same day as a good inflation report is not a coincidence. It is a preview.
So Where Does This Leave Anyone
The honest answer is: in a worse position than the Tuesday morning headlines suggested. Inflation cooled in June because gasoline got cheaper in June. Gasoline is getting more expensive right now because the president announced an aggressive escalation in a Middle East conflict on the same afternoon his administration got a nice CPI number to brag about. The timing is almost operatically bad.
The Federal Reserve has been watching all of this with the expression of someone who agreed to housesit and came home to find a party in progress. Rate cuts, which had been a tentative possibility later this year, are now considerably less likely if energy prices resume their climb. Goldman Sachs flagged rate hike risk. Oxford Economics hedged its peak-inflation call with the caveat that re-escalation could change everything. The June report is real and it is better than expected. It is also, almost certainly, already out of date.
The Dingo Take
The Biden years had plenty of frustrating economic moments, and Democrats made their share of messaging mistakes around inflation. But there is something almost magnificently self-defeating about a president receiving his best inflation report in months and choosing, on that exact same day, to announce a military blockade of one of the most strategically critical shipping lanes on Earth. If you were writing this as satire, an editor would send it back and tell you to make it more believable.
The 3.5% June CPI number is real. The 9.7% drop in gas prices that drove it is real. And the Brent crude spike to $86 a barrel triggered by Trump's Strait of Hormuz announcement is also real. These things coexisted on the same Tuesday, which tells you everything you need to know about the current governing philosophy: stumble into a good number, then immediately do something that threatens to undo it, and dare anyone to point out the connection.
By the time the July CPI report drops, the June one will be a historical footnote. Gas prices will have crept back up. Tensions in the Persian Gulf will either have stabilized or escalated further. And we will be back to explaining, again, why a number that looked good for about four hours in the morning turned into a different story by lunch.
