Inflation in the US eased last month as the cost of energy and filling up at the pump fell, but questions remain over whether it will prove short-lived due to the renewed conflict in the Middle East.
Prices rose 3.5% in the year to June, according to the Bureau of Labor Statistics (BLS), down from 4.2% recorded in May, which was a bigger drop than experts expected.
However, fresh military strikes by the US on Iran this week caused oil prices to surge again, with the cost of a barrel of Brent crude, the global benchmark, rising $10 in the space of 24 hours to hit $87.
Kevin Warsh, chairman of the Federal Reserve, said the central bank had “no tolerance to persistently elevated inflation”.
He told Congress in his first appearance before the House Financial Services Committee on Tuesday that he was committed to “restoring price stability” in the wake of the Middle East conflict impacting prices.
“Inflation’s a choice,” he claimed. “We monetary policymakers need to choose lower prices and that’s the commitment my colleagues have made.”
Analysts have suggested inflation could rise in the coming months, which could mean that the Fed decides to hold interest rates at the current level, or raise them.
“Energy prices plunged on the Iran ceasefire and memorandum of understanding (MOU),” said Scott Anderson, chief US economist at BMO Capital Markets.
“But with fighting back on in the Gulf, the MOU in tatters, and energy prices heading higher again in July, the balance of risks remains more heavily weighted toward a rate hike at some point this year.”
