Inflation slowed sharply in June as gas prices dropped — but it's a reprieve that may prove temporary as tensions with Iran once again ratchet up.
Consumer prices in June were up 3.5% from a year earlier, the Labor Department said on Tuesday. That's down sharply from the annual increase of 4.2% seen in May, which had been the highest in over three years.
The main factor slowing down inflation was a sharp drop in energy prices, which helped overall prices fall 0.4% in June compared to the 0.5% increase seen in May, according to the consumer price index (CPI) data.
The price at the pump for a gallon of regular gas at the end of June was 71 cents lower than they were during the May peak and have remained steady since, according to AAA. Gas prices fell in June after the U.S. and Iran agreed on a tentative cease-fire.
But crude oil prices have been climbing back up as the ceasefire between Iran and the U.S. ended this month, Iran claimed the Strait of Hormuz was once again closed and the U.S. military announced it will reinstate its blockade of Iranian ships trying to pass through the strait. President Trump also said Monday that he would impose a 20% toll on all cargo going through the strait. All this led to fears that energy prices will spike again.
"We're probably maybe a week away from seeing the national average again hitting $4.00," said Patrick De Haan, an analyst at GasBuddy. "The CPI party from June it's going to be crashed here I think for the month of July."
Strip away food and energy prices and so-called "core" inflation for the 12 months ending in June was 2.6%, lower than in May.
The data comes as the Federal Reserve's new chair, Kevin Warsh, begins the first of two-days of testimony before Congress on Tuesday as investors look for signs of whether the central bank will have to raise interest rates before the end of year.
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