The Federal Reserve’s preferred measure of inflation eased in June amid a temporary truce in the war with Iran. But the resumption of fighting this month suggests that the reprieve may not last.
Overall consumer prices fell 0.1 percent in June and were up 3.7 percent from a year earlier, according to data released by the Commerce Department on Thursday. That was a slower annual pace than the three-year high notched in May, when the Personal Consumption Expenditure price index rose 4.1 percent on a year-over-year basis.
“Core” prices, which exclude volatile food and energy costs and are seen as a more reliable gauge of underlying inflation, rose only 0.1 percent from the previous month. Compared with the same time last year, those prices were up 3.3 percent, roughly in line with June’s year-over-year increase.
June’s data captures a period before the war with Iran escalated again after a brief pause. During that respite, oil prices fell back toward their prewar level, helping to keep a lid on overall inflation for the month. But they climbed once again as strikes resumed in July. As recently as Wednesday, the United States struck back on Iran after it fired multiple missiles on American bases in Jordan.
The longer the war drags on, the more upward pressure that will put on inflation, which has overshot the Fed’s 2 percent target for more than five years.
On Wednesday, the central bank voted to leave interest rates unchanged at a range of 3.5 to 3.75 percent, a level that has been in place since January. But three officials dissented in favor of a quarter-point increase. Those voters were Beth M. Hammack of the Federal Reserve Bank of Cleveland, Neel Kashkari of the Minneapolis Fed and Lorie K. Logan of the Dallas Fed.
Wednesday’s inaction put Kevin M. Warsh, the new chairman, on the defensive in light of his pledge to get inflation down. At a news conference after the policy announcement, he reiterated that the Fed had not wavered in its commitment to achieving the 2 percent target. He also said that cooler June inflation data did not factor much into the Fed’s decision to stand pat.
But his hesitancy to fully embrace the notion that higher rates might be necessary to quell price pressures fomented fears across Wall Street that Mr. Warsh’s tough talk would not be backed up by action. Long-term U.S. government borrowing costs jumped higher on Wednesday as investors pushed back the timing of eventual rate increases. Expectations about inflation in the coming years also rose.
The Fed meets again in mid-September. By then, officials will have two more months of data in hand. If inflation does not show further signs of cooling, most officials have already suggested that they will need to tighten the Fed’s policy screws. In recent weeks, several policymakers have said they need to see this progress “soon.”
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