US consumer inflation likely increased at a slow pace in June as gasoline prices retreated

By Lucia Mutikani WASHINGTON, July 14 (Reuters) - U.S. consumer inflation likely slowed in June, but that would probably offer little comfort to households o...

By Lucia Mutikani WASHINGTON, July 14 (Reuters) - U.S. consumer inflation likely slowed in June, but that would probably offer little comfort to households or rule out an interest rate increase from the Federal Reserve this year, with the conflict in the Middle East still unresolved. The anticipated moderation in the Consumer Price Index would largely reflect a retreat in gasoline prices from multi-year highs as a fragile ceasefire between the U.S. and Iran took hold last month. That truce, however, collapsed last week after commercial tankers came under fire in the Strait of Hormuz, triggering military strikes between the United States and Iran.

Gasoline prices have reversed course as a result, with the national average rising to $3.87 per gallon on Monday from $3.80 a week ago, data from motorist advocacy group AAA showed. President Donald Trump said on Monday the United States would reinstate its blockade on Iranian shipping in the Strait of Hormuz, a vital route for global oil supplies, that has become one of the main battlegrounds of the conflict. "The pain level just went down from 10 to nine, consumers are still in a lot of pain," said Brian Bethune, an economics professor at Boston College.

"We're not out of the woods yet." The Labor Department's Bureau of Labor Statistics is likely to report on Tuesday that the Consumer Price Index increased by a still-high 3.8% in the 12 months through June, a Reuters survey of economists predicted. Estimates ranged from as low as 3.6% to as high as 4.0%.

The CPI surged 4.2% in May, the largest year-on-year rise since April 2023, which economists said was probably the peak. The U.S. central bank tracks the Personal Consumption Expenditures Price Indexes for its 2% inflation target. Inflation was last below 2% in early 2021.

Minutes of the Fed's June 16-17 meeting published last week showed policymakers' concerns about inflation mounted last month. The Fed left its benchmark interest rate unchanged in the 3.50%-3.75% range at the June meeting, though new projections revealed a growing sentiment around a likely rate hike in 2026. Financial markets were pricing in a roughly 50.8% chance of the Fed raising borrowing costs at its September 15-16 policy meeting, according to CME's FedWatch tool.

Consumer prices are expected to have dipped 0.1% over the month, which would be the first monthly drop since May 2020, after advancing 0.5% in May. "The level of prices is still compounding, and even with some grocery stores talking about trying to get people back in with some price cuts, it won't probably lower their overall bill much because there will be other factors," said Diane Swonk, chief economist at KPMG. "People are still struggling to catch up."