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U.S. inflation cools, but energy, tariffs, and AI keep crosscurrents
After CPI fell to 3.4% in July from 4.2% in May, oil and gasoline rebounds suggest limited extra disinflation ahead.
U.S. CPI inflation eased to 3.4% year over year as of July from 4.2% in May, driven largely by softer energy prices and fading tariff pass-through, according to analysis from Action Forex.
The outlet cautioned that the recent drop does not confirm a smooth path back to the Fed’s 2% target, noting that oil prices remain supported by unresolved Middle East risks, constrained shipping through the Strait of Hormuz, and the winding down of the IEA’s record 400 million barrel emergency oil release. It also pointed to resilient demand and tight refined product markets that could keep a floor under prices in the near term.
Action Forex added that beyond energy, price pressures connected to AI demand are showing up in electronic devices and software, offsetting some of the cooling from tariff impacts and potentially slowing the adjustment of inflation toward the Fed’s target. The analysis also said the latest oil and gasoline rebounds indicate energy may provide little additional relief to headline CPI going forward.
Looking ahead, the analysis held to a baseline expectation that the Fed will keep rates steady at its next meeting, but said the stakes are higher for the August CPI report after Chair Warsh’s more hawkish message at Jackson Hole, with a hotter print raising the risk the FOMC would tighten to preserve credibility. It also highlighted that June and July declines were closely tied to gasoline falling from $4.56 per gallon to about $4, which shaved roughly three quarters of a percentage point from CPI and accounted for about 85% of the two month deceleration.
Latest closeGasoline (RBOB) $3.096 ▼1.2%