The June CPI in the United States may reach a turning point, but the US-Iran conflict has disrupted the situation and the Fed's expectations for interest rate hikes this year have not diminished.

Note that the US will release the CPI data for June tonight. Consumer inflation in June may have slowed down, but this may not bring much comfort to families, and it does not rule out the possibility of the Fed raising interest rates this year, as the Middle East conflict remains unresolved. The expected slowdown in the Consumer Price Index (CPI) mainly reflects the fall in gasoline prices from multi-year highs, as the fragile ceasefire agreement between the US and Iran went into effect last month. However, last week, commercial oil tankers were attacked in the Strait of Hormuz, triggering military strikes between the US and Iran, causing the ceasefire agreement to collapse. As a result, gasoline prices have turned upwards. Data from the AAA, a car advocacy organization, shows that the national average gasoline price rose from $3.80 per gallon a week ago to $3.87 per gallon on Monday. US President Trump announced on Monday that the US would resume blocking Iranian shipping in the Strait of Hormuz, a key global oil supply route that has now become a major battleground in this conflict. Boston College economics professor Brian Beaton stated, "The misery index has only dropped from 10 to 9, and consumers are still in a very difficult situation. We have not yet emerged from this predicament." Surveys among economists predict that the Labor Statistics Bureau under the US Department of Labor may report on Tuesday that the Consumer Price Index (CPI) for the 12-month period ending in June remains at a high of 3.8%. Forecasts range from a low of 3.6% to a high of 4.0%. In May, the CPI surged 4.2% year-on-year, the largest increase since April 2023, leading economists to believe that this may have already peaked. The Fed tracks the Personal Consumption Expenditures (PCE) Price Index to achieve its 2% inflation target. The last time inflation was below 2% was at the beginning of 2021. The minutes of the Fed's meeting on June 16-17, released last week, show that policymakers have increased their concerns about inflation over the past month. The Fed kept its benchmark interest rate unchanged at 3.50% to 3.75% at the June meeting, but new forecasts show that policymakers are increasingly inclined to raise rates in 2026. According to the CME's FedWatch tool, the financial markets estimate a likelihood of about 50.8% that the Fed will raise borrowing costs at its policy meeting on September 15-16. It is expected that the Consumer Price Index for June will decrease by 0.1% month-on-month, marking the first monthly decline since May 2020, while it increased by 0.5% in May. Diane Swonk, Chief Economist at KPMG, stated, "Price levels are still rising like compounding interest. Even though some grocery stores claim to attract people back by lowering prices, this may not reduce their overall spending as other factors exist. People are still struggling to keep up with prices." Data from the Energy Information Administration (EIA) shows that the average gasoline price fell from $4.61 per gallon in May to $4.18 per gallon, the highest level since July 2022. Current oil prices are still far higher than pre-war levels. The mild easing of pump gasoline prices may be offset by the expected rise in food prices following the slight increase in May. Food prices may rise Economists suggest that the war between the US and Iran has pushed up fertilizer prices and distribution costs, combined with drought conditions in parts of the country, may push up food prices later this year and into 2027. Excluding the more volatile food and energy components, it is expected that the core CPI for June will increase by 2.8% year-on-year, compared to a growth of 2.9% in May. The so-called core CPI month-on-month is expected to increase by 0.2%, the same as in May. Some economists view the moderate growth of core CPI as a positive signal. Despite the reignition of war between the US and Iran pushing up oil prices, they remain below the levels reached at the end of April and the beginning of May. Andrew Hollenhorst, Chief US Economist at Citigroup, stated, "For Fed officials, what is most important is core inflation that is not directly influenced by oil prices. A previous concern was that higher energy costs would 'pass through' to core inflation, but aside from relatively resilient airfare prices (which should now reverse), higher oil prices have not significantly boosted core inflation." However, other economists are not so optimistic. They believe that the moderate core CPI data indicates sticky underlying inflation, which will keep the expectation of rate hikes this year in consideration. They point to persistently high input prices in business surveys and longer supplier delivery times. Producer price data also suggests that price increases are on the horizon. In June, the monthly core CPI is expected to be driven by increases in prices of services and hotel rooms related to the FIFA World Cup. After recording the largest drop since October 2020 in May, car insurance is expected to rebound. Airfare prices and rents are expected to moderately rise. Core goods inflation month-on-month may remain flat, with economists suggesting that Apple's price increases at the end of June may be reflected in the data for July. They believe that the transmission effects of tariffs are weakening, although clothing prices may rise and household furniture prices may rebound. Samuel Tombs, Chief UK and US Economist at Pantheon Macroeconomics, stated, "The CPI report for June is unlikely to clearly lean towards or rule out the possibility of the Fed tightening policy this year."