US Inflation Slowed Due to Cheaper Gas, But Prices Rising Again

Inflation in June decreased primarily due to a 12% drop in gasoline prices, which contributed to a 0.3% decline in the producer price index and a 0.4% drop in consumer prices. However, this relief is diminishing as Brent crude oil prices surged 18% following renewed tensions in the Strait of Hormuz. The decline in gasoline prices accounted for nearly two-thirds of the overall 1.4% decrease in final demand goods prices. Without the drop in fuel costs, producer prices would have slightly increased. Prices for processed goods fell 1.2%, while unprocessed materials dropped 4.1%. Services showed more resilience, with trade margins rising 0.4% and core producer prices increasing 0.2%. The initial decline in energy prices followed a ceasefire on June 17, but the situation escalated after Iran allegedly attacked commercial ships, leading to a reinstated naval blockade. As of July 8, Brent crude rose 9.6% and traded above 85 dollars. The Strait of Hormuz, which carries about 20% of the world's oil, saw a significant drop in transits. The Department of Energy reported that 8.5 million barrels crossed the strait on Sunday, matching typical flows, but the Strategic Petroleum Reserve is at its lowest since 1983. Analysts warn that a physical shortage could push oil prices to 100 dollars. Federal Reserve Chair Kevin Warsh indicated he would not tolerate sustained high inflation, with markets pricing an 87.7% chance of a hold on July 29. The upcoming July data will clarify the inflation trend.

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