Has Inflation Peaked?

What has President Trump said this week?

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What has President Trump said this week? 〰️

1. U.S. Resumes Attacks on Iran

The United States resumed large-scale military operations against Iran after the preliminary peace arrangement reached in June broke down. U.S. forces conducted four consecutive nights of strikes, including a seven-hour operation targeting Iranian missile, drone, naval, and coastal defense facilities. According to the Trump administration, the objective was to reduce Iran's ability to threaten commercial shipping after Iranian forces reportedly attacked seven vessels in one week. President Trump also reinstated a blockade of Iranian ports and warned that military operations could expand to include bridges and power infrastructure if negotiations do not resume (Washington Post, 2026; CBS News, 2026).

The renewed conflict reflects different interpretations of the June memorandum by Washington and Tehran. A key point of disagreement remains the Strait of Hormuz, which carried about 20% of global oil and liquefied natural gas tradebefore the conflict. Iran argues that repeated U.S. military strikes invalidated the agreement and has suspended its commitments, stating that it will not return to negotiations unless the United States first complies with the original terms. The Trump administration has continued to call for renewed talks but has not established a formal deadline (Al Jazeera, 2026). 

The breakdown of the agreement reintroduces a significant source of uncertainty for global energy markets. Shipping activity through the Strait of Hormuz has declined sharply, while renewed attacks pushed Brent crude above $85 per barrel on July 15. At the same time, the administration abandoned a proposed 20% transit fee on cargo moving through the strait following opposition from the shipping industry, instead pursuing broader trade and investment agreements with Gulf countries. If disruptions to shipping or energy infrastructure continue, they could increase freight, insurance, fuel, and manufacturing costs, complicating the recent progress on inflation and potentially influencing the outlook for monetary policy (Washington Post, 2026; CBS News, 2026).

2. U.S. Wages Barely Outpace Inflation

American wages have continued to increase, but inflation has offset most of those gains. Average hourly earnings rose 3.5% over the year through June, matching the 3.5%inflation rate. As a result, real wages have changed very little since President Trump took office in January 2025. Inflation-adjusted earnings are only about $0.27 per hour higher than 18 months ago. For production and nonsupervisory workers, nominal pay increased 4.9%, while consumer prices rose by nearly the same amount, leaving real wages just 0.1% higher (Washington Post, 2026; Axios, 2026). 

Much of the recent inflation has been driven by higher energy costs following the Iran conflict. Real wages improved during the first year of President Trump's second term, but rising oil, gasoline, and transportation prices offset much of that progress this spring. One estimate suggests the conflict offset roughly 18 months of real wage growth, leaving purchasing power little changed from January 2025. June provided some relief, with lower gasoline prices pushing real hourly earnings up 0.8% from May, the largest monthly increase in more than a year. However, renewed geopolitical tensions and higher oil prices could quickly reverse those gains (Economic Policy Institute, 2026; Washington Post, 2026). 

For households, the result is straightforward: higher paychecks have translated into little additional purchasing power. Workers receiving wage increases below the inflation rate are effectively falling behind, particularly those with significant spending on gasoline, food, housing, and debt payments. Looking ahead, persistent weakness in real wage growth could weigh on discretionary consumer spending, credit quality, and consumer confidence if energy prices remain elevated. With household consumption accounting for nearly 70% of U.S. GDP, the trajectory of inflation, and especially energy prices, will remain a key driver of the broader economic outlook (Yahoo Finance, 2026; Axios, 2026). 

3. Inflation Cools, but Energy Risks Remain

Annual inflation slowed to 3.5% in June, down from 4.2% in May and below economists' expectations of 3.8%. Core inflation, which excludes food and energy, eased to 2.6%. The moderation was driven primarily by lower energy prices: gasoline fell about 10% from May, the broader energy index declined 5.7%, and fuel oil dropped 9.2%. Together, these declines provided consumers with the first meaningful relief in fuel costs since the Iran conflict pushed energy and transportation prices higher earlier this year (CNBC, 2026; Washington Post, 2026; Wall Street Journal, 2026). 

The improvement coincided with the temporary U.S.-Iran ceasefire, which eased concerns over oil supply disruptions. Brent crude briefly declined to about $67 per barrel in early July before rebounding as geopolitical tensions intensified. By July 13, Brent had risen to $80 per barrel, and by July 15, crude traded above $85 following renewed U.S.-Iran attacks. Shipping activity through the Strait of Hormuz also declined by more than 50% compared with the previous week, increasing concerns about potential supply disruptions. Meanwhile, the average price of regular gasoline remained about $3.87 per gallon, roughly $0.70 higher than a year earlier (The Guardian, 2026; Al Jazeera, 2026; Reuters, 2026). 

Despite the renewed tensions, New York Fed President John Williams said there are encouraging signs that inflation has peaked. He expects inflation to decline to around 3.25% by year-end, continue moving toward the Federal Reserve's 2% target in 2027, and reach that objective in 2028. Williams argued that the inflationary effects of tariffs should gradually fade, the recent oil price spike is likely to moderate, AI-related supply imbalances should ease as additional capacity comes online, and long-term inflation expectations remain well anchored. While markets continue to anticipate the possibility of another rate hike later this year, Williams said the Fed's current policy stance is well positioned to bring inflation lower over time (CNBC, 2026). 

June's inflation report reflects conditions that have already changed. While the data captured the temporary decline in energy prices, it does not yet incorporate the recent increase in crude oil prices. If energy costs remain elevated, inflation could strengthen again in July, potentially limiting the Federal Reserve's flexibility to lower interest rates. The key question is whether higher energy prices remain concentrated in fuel and transportation or begin to spread into food, utilities, travel, and other services. Companies with significant exposure to fuel, freight, or electricity costs may face renewed margin pressure, while businesses with stronger pricing power are likely to be better positioned to absorb higher input costs.

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