Falling Gas Prices Likely Cut Inflation07/14 06:06

   Inflation likely cooled last month as gas prices declined, providing 
consumers with some welcome relief even as renewed combat with Iran has sent 
oil prices climbing again.

   WASHINGTON (AP) -- Inflation likely cooled last month as gas prices 
declined, providing consumers with some welcome relief even as renewed combat 
with Iran has sent oil prices climbing again.

   The government's latest inflation report, to be released Tuesday, is 
forecast to show that consumer prices dropped 0.2% in June, according to a 
survey of economists by data provider FactSet. It would be the first monthly 
decline in nearly four years. Compared with a year ago, prices probably rose 
3.9%, down from a 4.2% annual rate in May.

   Gas prices have fallen a bit more in July, suggesting inflation could dip 
again in next month's report. Still, the better numbers aren't likely to unwind 
concerns about affordability that have become a political liability for the 
Trump administration as the midterm elections near. Inflation is still higher 
than before the Iran war, when it was just 2.4%.

   And the situation in the Middle East continues to change hour to hour. On 
Monday, the price for a barrel of Brent crude oil, the international standard, 
climbed 9.6% to $83.30 after the United States and Iran each said the Strait of 
Hormuz is under its control.

   Gas price spikes have also raised air fares. And by pushing up diesel 
prices, they have lifted shipping costs for groceries and other goods.

   Yet analysts will be looking at more than gas prices. World Cup matches in 
11 U.S. cities likely boosted hotel prices, economists forecast. New and used 
car prices are expected to have fallen. But prices for many services -- 
restaurant meals, entertainment, healthcare -- are still rising more quickly 
than they did before the pandemic.

   Excluding the volatile food and energy categories, core prices are forecast 
to have risen 0.2% in June from the previous month, and 2.8% from a year 
earlier, according to FactSet. Monthly increases at that level for the rest of 
the year would bring core prices -- which the Fed pays close attention to -- 
nearer to target.

   A slowdown in inflation could take some pressure off the Federal Reserve to 
raise its key rate, which it typically does to cool spending and price 
increases. Chair Kevin Warsh, who took over May 22, has underscored that the 
Fed is tightly focused on getting inflation back to its target of 2%, though he 
has declined to signal what the Fed's next steps will be.

   Other Fed officials, however, have warned that inflation has been above 
their target for more than five years, and unless there are clear signs it is 
declining, a rate hike might be needed. John Williams, president of the Federal 
Reserve Bank of New York, said last week that core inflation increasing at 0.2% 
a month or less for the rest of this year would be consistent with falling 
inflation.

   Many of those officials have said massive investments in the buildout of 
artificial intelligence infrastructure could also worsen inflation by pushing 
up prices for memory chips and other semiconductors, as well as electricity. As 
a result, companies like Apple, Microsoft, and Dell have announced price 
increases for laptops, tablets, and video game consoles.

   On Monday, Fed governor Christopher Waller said he was worried about core 
inflation, which he noted had risen from 3% last December to 3.4% in May, 
according to the Fed's preferred measure, which uses data from the consumer 
price index. He pointed out that the cost of more than two-thirds of services 
have risen by 3% or more compared with a year ago.

   Waller had favored cutting rates early this year, but is now warning a hike 
could be needed.

   "If we get another hot reading on core inflation this week, then the (Fed) 
will need to consider tightening monetary policy in the near term," Waller said 
in a speech in New York.

   Gas prices have fallen nearly 20% from their peak in late May but have 
rebounded in the past week, likely in response to renewed fighting in the 
Middle East. Gas prices averaged $3.87 a gallon nationwide Monday, up 7 cents 
from a week earlier. They averaged $4.09 a month ago, according to AAA.

   Other signs of where prices are headed are mixed. The Federal Reserve Bank 
of New York said last week that a survey found that nearly half the companies 
in its region that have paid tariffs still plan to lift their prices further.

   Separately, Walmart last week said it was rolling back prices on thousands 
of items, including ground beef, potato chips, toys, and clothes. President 
Donald Trump praised the move on social media and sought to take credit for the 
reduction, though the company did not mention Trump in its announcement.