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The consumer price index climbed 3.4% year-over-year in July 2026, marking a slight decrease from June’s 3.5% reading, according to data released Wednesday by the Bureau of Labor Statistics. While inflation remains elevated compared to the Federal Reserve’s 2% target, economists say the trajectory suggests a gradual cooling of price pressures across the economy.
Energy costs continue to be a significant driver of inflation, with prices up 14.7% over the 12-month period due to ongoing geopolitical tensions. Gasoline prices surged 24.6% annually, reaching a national average of $4.04 per gallon, while airline fares climbed 25.5%. However, grocery prices demonstrated unexpected resilience, rising just 3% overall, with food purchased at home increasing only 2.7%, providing some relief to households struggling with affordability concerns.
Core inflation, which excludes volatile food and energy categories, increased 2.5% year-over-year, with modest gains in vehicles, apparel, and shelter. Moody’s chief economist Mark Zandi characterized the report as “benign,” noting that if current trends persist and energy prices stabilize, inflation could approach the Fed’s target range. The Federal Reserve currently maintains its benchmark rate between 3.5%-3.75% and is adopting a cautious stance, with rate decisions likely deferred until October pending confirmation of sustained moderation.
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