Why is US inflation staying high despite recent monthly changes?

The report links stubborn inflation to the Iran war, which has kept gas prices high, as well as President Donald Trump s threats of new tariffs on Canada and China. It also says spending on AI infrastructure has pushed up the cost of computers, gaming consoles and semiconductors.

What did the latest Commerce Department inflation report say for July?

Overall inflation was unchanged from the prior month in the report, but it still stood 3.7 percent higher than a year earlier. Core inflation, which excludes food and energy, also stayed unchanged at 3.3 percent.

How is the inflation data affecting the Federal Reserve outlook?

The figures are unlikely to settle the split inside the Federal Reserve over whether to keep interest rates steady or raise them. Some officials want to wait and see whether inflation cools on its own, while others support higher rates to slow borrowing and spending.

Key inflation gauge remains elevated during Iran war; ongoing US trade fights

Listen

Summary

US inflation remained elevated in July as a closely watched Commerce Department measure stayed unchanged at 3.7 percent year over year in Washington. The reading came as the Iran war, higher gas prices, threatened tariffs on Canada and China, and AI-related spending continued to pressure costs. Core inflation also held at 3.3 percent. The figures are unlikely to settle disagreement at the Federal Reserve over whether to keep rates steady or raise them.

Key Facts

Inflation had risen from 2.9 percent when the Iran war began in late February to 3.7 percent in July.
Excluding food and energy, core inflation was unchanged at 3.3 percent in July.
Overall inflation rose 0.2 percent from June to July after falling 0.1 percent the previous month and rising 0.5 percent in May.
Core prices also increased 0.2 percent from June to July, compared with 0.1 percent in the previous month.
New Fed Chair Kevin Warsh is scheduled to give a high-profile speech Friday in Jackson Hole, Wyoming.

By AP

Published Aug 26, 2026 11:25 pm KST

A person shops at a supermarket in New York City, Tuesday. AFP-Yonhap

WASHINGTON — An inflation measure closely watched by the U.S. Federal Reserve was unchanged last month in the latest sign that many Americans are still struggling with higher costs.

The Commerce Department's Wednesday report showed that prices rose 3.7 percent in July compared with a year earlier. Inflation has worsened since the Iran war began in late February, when it stood at 2.9 percent. It's noticeably above the Fed's target of 2 percent.

Stubbornly high prices are shaping up to be a key issue in the midterm elections, particularly as the Iran war keeps gas prices high, President Donald Trump is threatening new tariffs on Canada and China, and spending on AI infrastructure has pushed up the cost of computers, gaming consoles and semiconductors.

Wednesday's inflation figures are unlikely to fully resolve a split at the Federal Reserve, where most officials are willing to hold interest rates steady to see if inflation can cool on its own. But many officials have supported raising rates to slow borrowing and spending and combat higher prices. New Fed Chair Kevin Warsh will deliver a high-profile speech Friday in Jackson Hole, Wyoming that will be closely watched by Wall Street for any signs of his thinking about next steps.

Excluding the volatile food and energy categories, core inflation was also unchanged at 3.3 percent in July.

On a monthly basis, overall inflation rose 0.2 percent from June to July, after declining 0.1 percent the previous month and jumping 0.5 percent in May. Core prices also moved up 0.2 percent from June to July, higher than 0.1 percent in the previous month. Some Fed officials have said that core inflation running at about 0.2 percent a month would be a reassuring sign that inflation is heading back to the 2 percent target.

Still, gas prices have rebounded this month, which will likely push up inflation when the August figures are reported next month. And many Fed officials worry that with inflation topping their target for more than five years, higher rates may be necessary to get price increases under control.

Explore More