Inflation fell to 3.4% in July, easing pressure on Fed

U.S. consumer prices rose 3.4% in July from a year earlier, the Bureau of Labor Statistics reported Wednesday. That is down from 3.5% in June and well below May's recent peak of 4.2%.

• 0.1% was the month-over-month price increase from June to July.
• Core inflation, excluding food and energy, fell to 2.5% annually.
• Average hourly earnings rose just 3.2% over the year in July.
• The economy lost 23,000 jobs in July, the first negative monthly total since February.

Why it matters: The report lands at a moment of genuine uncertainty for the Fed and for household budgets. Inflation has not hit the Fed's 2% target in more than five years, services costs keep rising, and a weakening jobs market complicates any decision to raise rates.

• Service costs — healthcare, restaurant meals, car maintenance — are rising above 3% annually and are not sensitive to gas or AI price swings.
• Sherwin-Williams plans an 8% price increase on Sept. 1, signaling some firms are still passing higher input costs to consumers.

How 34 sources split on this story

Where they split: The central disagreement is whether July's cooling is a durable trend or a temporary dip driven by post-ceasefire gas prices that are already reversing.

What’s next: Gas prices have risen roughly 13 cents per gallon since July, pointing to potential upward pressure in August inflation data.

• CME FedWatch puts September rate-hike odds at roughly 50-50.
• Fed Chair Kevin Warsh said rate increases "could well be part of" the solution if inflation stays elevated.
• Will August data show inflation re-accelerating as gas prices climb back?
• Will the Fed's divided board vote to hike in September, and how will Warsh break any tie in thinking?
• Are service-sector price increases structural, or will they ease as wage growth slows?