Inflation Cools, but Consumer Spending Drops to Lowest Point Since May 2025

US inflation cooled in July, but consumer spending dropped to its lowest point since May 2025. The Labor Department reported that consumer prices rose 3.4% from a year ago, down from 3.5% in June. Despite this decline, inflation remains higher than before the Iran war began in February, when it was 2.4%. On a monthly basis, prices increased by just 0.1% from June to July.

The Federal Reserve is divided over whether to hike its key interest rate to combat inflation. The Fed kept its rate unchanged at about 3.6% at its last meeting, with a 9-3 vote, three dissenters favoring a rate hike.