US inflation cools to 3.4% in July, energy up 14.7%

Consumer prices rose in July 2026, reversing a decline in June, according to data released by the Bureau of Labor Statistics on August 12, 2026. The consumer price index, a key inflation gauge, increased 3.4% from a year earlier, down slightly from 3.5% in June.

Energy costs remained a major driver, with prices up 14.7% over the 12 months ending in July amid doubts about a broader U.S.-Iran resolution. Gasoline prices jumped 24.6% year over year, fuel oil rose 39.1%, and airline fares climbed 25.5%. The national average price for a gallon of gas was $4.04 as of Wednesday, according to AAA, up from about $3.14 a year ago.

Food prices increased 3% over the past year, with food at home up 2.7%. The meats, poultry, fish, and eggs index rose 1.9%, while dairy fell 0.5%. Brian Bethune, an economics professor at Boston College, noted that meat prices are way up, chicken is slightly down, egg prices have come back down, and there is now a problem with lettuce due to cyclospora outbreak concerns dampening demand.

Core CPI, which excludes food and energy, was up 2.5% on the year, with modest increases in new vehicles, apparel, and shelter. Mark Zandi, chief economist at Moody's, called the report "very benign" and said inflation is "still high but moving in the right direction," assuming the war in Iran fades to the background. He added that affordability is still a serious problem, though much better than it has been.

The Federal Reserve kept its benchmark borrowing rate in a range of 3.5%-3.75% last month and signaled a possible increase. Karen Manna, fixed income investment director at Federated Hermes, said in an email that after more than five years of above-target inflation, policymakers want a clear and lasting trend before acting, leaving the Fed in wait-and-see mode. Experts say the latest CPI reading leaves a September rate hike on the table, but the odds are higher for an October move.