US Annual Inflation Cools to 3.4% in July as Gas and Food Prices Ease

US annual inflation cooled to 3.4% in July, offering price-weary consumers a modest reprieve as gas prices eased and grocery price hikes slowed, according to data released Wednesday by the Bureau of Labor Statistics. While the Consumer Price Index rose 0.1% on a monthly basis in line with economists’ expectations, stubborn cost-of-living pressures persist across the broader economy.

Drivers of the July Inflation Slowdown

Annual inflation slowed for the second month in July, driven largely by falling energy costs and a deceleration in housing price increases. According to the Bureau of Labor Statistics, gas prices fell 2.9% in July compared to the previous month, helping keep overall price growth in check.

Housing costs, captured within the broad shelter category that accounts for about one-third of the overall CPI basket, rose just 0.1% in July. Price drops in hotels, motels, and other away-from-home accommodations contributed to that slowing trend. Food inflation also moderated, with grocery prices falling 0.1% in July to run at an annual rate of 2.7%, according to data cited by KPMG chief economist Diane Swonk, who noted that big-box discounters and grocery chains made a concerted effort to hold prices steady over the summer.

Persistent Price Pressures and Core Inflation Measures

Despite headline relief, underlying price pressures remain visible across specific sectors of the economy. Core CPI, which strips out volatile food and energy costs, rose 0.2% in July, bringing its annual rate to 2.5%, a level matching rates last seen in January and February of this year.

KPMG’s Diane Swonk highlighted continued brisk price hikes in services-related categories, including medical services, airfares, and car repairs. Meanwhile, Andreas Hauskrecht, a clinical professor of business economics at Indiana University, pointed to heightened energy costs as an ongoing risk that could filter through other areas of the economy in the coming months.

Wage growth continues to lag behind cumulative price increases from prior years. The latest jobs report showed that Americans’ pay gains stand at 3.2%, leaving many households feeling stretched despite the recent moderation in monthly inflation readings.