US inflation slows to 3.4% in July as energy prices dip

US consumer inflation slowed to 0.1 percent in July, the Department of Labor's Bureau of Labor Statistics reported on Wednesday, August 12, 2026, as energy prices briefly retreated on hopes that the Strait of Hormuz would reopen. The annual rate stood at 3.4 percent, still well above the Federal Reserve's 2 percent target.

Energy prices, which have driven much of the inflation, fell 1.5 percent from the previous month but remain 14.7 percent higher than a year ago. Petrol prices dropped 2.9 percent from last month yet surged 39.1 percent from a year earlier. The average price for a gallon of petrol is $4.03, according to the American Automobile Association, compared with $4.00 on Monday, $4.08 a week earlier, $3.87 a month ago, and $2.98 per gallon on February 28, when the US and Israel first struck Iran.

Michael Klein, professor of international economic affairs at The Fletcher School at Tufts University, told Al Jazeera that energy prices fell in July because people thought the blockage of the Strait of Hormuz would end, but it did not. Shipping remains severely disrupted since Iran established a maritime "toll booth" in the strait shortly after the war began in late February. Brent crude fell 7 percent last week but jumped this week as hopes faded, with futures rising 0.3 percent to $89.19 per barrel on Wednesday.

Food prices rose marginally by 0.1 percent in July and were 3 percent higher than a year ago. The inflation data follows a lacklustre jobs report last week showing the US economy lost 23,000 jobs, with most losses in retail trade, local government education, and hospitality, while healthcare made gains. The Jobs and Labor Turnover Report showed little change in the number of people leaving their jobs for new ones, continuing a low-fire, low-hire environment.

The Federal Reserve kept interest rates at 3.50–3.75 percent in July. Economists are divided on whether rates will rise or remain unchanged at the next policy meeting on September 16, the third under new chairman Kevin Warsh, who took over from Jerome Powell in May. CME FedWatch forecasts a 61.6 percent chance of maintaining rates and a 38.4 percent chance of an increase to 3.75–4.00 percent.

US markets responded with the tech-heavy Nasdaq up 0.7 percent, the S&P 500 up 0.3 percent, and the Dow Jones Industrial Average up 0.05 percent since the market opened. Gold prices rose 1.4 percent to $4,428 an ounce. With only two more inflation reports before the midterm elections, a Reuters/Ipsos poll last week found 37 percent of Americans believe Democrats are better at handling the economy, versus 36 percent for Republicans.