For one brief, shining moment, American inflation was actually getting better. Then Donald Trump declared a naval blockade in the Strait of Hormuz, struck Iran militarily, and oil prices jumped nearly $10 a barrel in 24 hours. The good news lasted about as long as a campaign promise.
The Number That Looked Good for About Five Minutes
According to the Bureau of Labor Statistics, US inflation came in at 3.5% for the year to June, down from 4.2% in May. That is a real drop. A meaningful one. The kind of number economists were cautiously pleased about before checking what else happened this week.
Gasoline prices fell 9.7% last month, which is the main reason the overall figure moved in the right direction. Energy broadly fell 5.7%. The problem, as BBC News reports, is that gas prices are already back above June levels as of Tuesday, when the national average hit $3.86 a gallon. The June win is already yesterday's news, and the July report is going to look very different.
Swissquote Bank senior analyst Ipek Ozkardeskaya put it plainly: 'Gasoline prices are already back above June levels, meaning the next inflation report will heat up again.' There is your 'good news' caveat, printed in neon.
How to Torpedo Your Own Inflation Win in One Week
Here is a fun exercise. Imagine you are president. Inflation is finally easing. The Fed is holding rates steady. Things are fragile but moving in a direction that does not make economists visibly sweat. What do you do next?
If you are Donald Trump, you launch military strikes on Iran and announce a 20% charge on all cargo moving through the Strait of Hormuz, one of the most critical shipping chokepoints on the planet. Per BBC News, Brent crude hit $87 a barrel on Tuesday, up almost $10 in a single day. That is an enormous, immediate jolt to global energy costs, and it traces directly back to decisions made in the White House this week.
Analysts are already predicting inflation will rise in the coming months as a result. The strikes and blockade have effectively kneecapped whatever soft landing the June numbers were hinting at. This is not a supply chain hiccup or an act of God. This is a choice with a very clear bill attached to it.
Meet the New Fed Chair, Already in an Impossible Spot
Newly appointed Federal Reserve chairman Kevin Warsh made his first address to Congress on Tuesday, and he walked in carrying luggage that was not his. His prepared remarks, as BBC News reports, included the declaration that the Fed has 'no tolerance to persistently elevated inflation' and a 'resolute commitment to restoring price stability.' That sounds like someone trying very hard to signal independence before the president starts yelling at him on social media.
Warsh's predecessor, Jerome Powell, spent years being publicly harangued by Trump for not cutting rates fast enough. Trump has made no secret that he expects his handpicked replacement to deliver the rate cuts Powell refused to provide. But with inflation still above target, oil spiking, and core inflation stuck at 2.6%, Warsh does not have obvious room to comply.
Lindsay James, investment strategist at Quilter, told BBC News that just because Warsh has gotten his 'feet under the table, it does not mean rate cuts are looming in order to appease President Trump.' That is a polite way of saying the new chair cannot just do what the boss wants. Meanwhile, Fed governor Christopher Waller warned Monday that the FOMC may need to actually raise rates if core inflation comes in hot. Rate hikes. The opposite of what Trump ordered.
Food Prices Are Still Eating People Alive
While energy provided the June relief, food did the opposite. BBC News reports that meat, poultry, fish, eggs, dairy, and cereals all got more expensive last month. Eating out costs 3.7% more than it did a year ago. The people who are least able to swap behaviors to cope, those without cars to fill up or investments to hedge with, are still getting squeezed at the grocery store and the diner counter.
On Tuesday, the National Federation of Independent Business reported that more than a fifth of small business owners named inflation as their single most important problem. That is the highest reading in almost two years. These are not hedge fund managers worried about portfolio yield. These are people running hardware stores and restaurants who cannot absorb costs the way a Fortune 500 company can. They pass them on, which means consumers pay again.
What Lower Inflation Actually Means (and Does Not Mean)
This is worth saying clearly because it tends to get lost in the headline number. Inflation falling to 3.5% does not mean prices dropped. It means prices are rising more slowly than they were before. Everything that got expensive over the last four years is still expensive. The $6 dozen eggs are still $6. The grocery bill that ballooned in 2022 has not shrunk. The rate of the bleeding slowed. The wound is still there.
Core inflation, which strips out food and energy because both swing too wildly to be useful for monetary policy, held flat at 2.6% in June. That is the number the Fed actually watches when deciding what to do with interest rates. It did not improve. It did not worsen. It sat there, anchored above the Fed's 2% target, giving Warsh exactly zero political cover to cut rates and exactly enough cover to hold them steady while the president fumes.
The Dingo Take
The June inflation number is real and it is genuinely good. Give credit where it is due. The problem is that it arrived at the exact same moment as a set of military and economic decisions that will almost certainly push inflation back up in July, August, and beyond. You cannot bomb a critical oil shipping lane and declare a 20% tariff on cargo moving through it and then wonder why gas prices went back up. These are not separate stories. They are the same story.
Trump spent years demanding Jerome Powell cut rates, then installed Kevin Warsh to do what Powell would not. Warsh walked into his first Congressional address and said the Fed will not tolerate persistently elevated inflation, which is just a formal way of saying he is not going to do the thing Trump put him there to do. At least not yet. Whether that holds when the president starts making his expectations very loudly known is a different question, and the answer to it will matter enormously to everyone paying a mortgage or a car loan or a credit card bill.
The small business owners, the people buying groceries, the drivers refilling tanks that were just getting marginally cheaper to fill, they are going to absorb whatever comes next from a geopolitical escalation they had no vote on and no say in. The June report looked like a corner being turned. Then somebody torched the corner.
