June’s inflation slowdown was driven largely by a 12% drop in gasoline prices, but that relief is already reversing as Brent crude surged 18% in a week following the collapse of the US-Iran ceasefire and a renewed naval blockade of the Strait of Hormuz. The producer price index fell 0.3% in June and consumer prices dropped 0.4%, both benefiting from lower energy costs. However, with the Strait of Hormuz blockade taking effect Tuesday and Brent trading above $85, economists warn that the disinflation trend may be short-lived.
Gasoline’s June Plunge Masked Underlying Pressures
Gasoline’s 12% decline accounted for nearly two-thirds of the 1.4% drop in prices for final demand goods, according to the Bureau of Labor Statistics. Without cheaper fuel, producer prices would have edged higher. The decline rippled through the supply chain: processed goods for businesses fell 1.2%, and unprocessed materials dropped 4.1%.
Services proved stickier. Trade margins rose 0.4%, and core producer prices increased 0.2% from the previous month. The energy relief followed the Islamabad Memorandum, a June 17 ceasefire that paused the US-Iran war. Brent crude had surged 63% during the first month of the conflict, reaching $118 in late March, before falling back to $70 by July 1.
Strait of Hormuz Blockade Reshapes Oil Outlook
The fragile truce collapsed on July 8 after Iran allegedly struck commercial ships. President Donald Trump then announced a reinstated naval blockade, which US Central Command said took effect at 4 p.m. ET on Tuesday. Brent jumped 9.6% on Monday alone and traded above $85 by Wednesday.
The strait carries roughly a fifth of the world’s oil. MarineTraffic recorded 57 transits from Friday through Sunday, down more than 50% from the prior week. Before the war began in February, Hormuz handled roughly 130 transits a day.
The Department of Energy said 8.5 million barrels crossed the strait on Sunday with military assistance, matching typical flows. However, the Strategic Petroleum Reserve sits at its lowest level since 1983, leaving little buffer. Sparta Commodities analyst June Goh warned that the mini-glut of oil has evaporated, with potential disruptions from the Bab el-Mandeb Strait if Houthis join the attacks. TD Securities strategist Bart Melek sees $100 oil as possible if physical shortage risks become real.
Fed Faces Renewed Inflation Risk
Fed Chair Kevin Warsh told Congress this week he will not tolerate persistently elevated inflation. Markets currently price an 87.7% chance of a July 29 hold. A renewed oil shock could revive the Fed hike bets that faded after the soft June data.
Gasoline remains nearly 43% higher than a year ago, so June’s relief came off an elevated base. “There’s no near-term pressure on the Fed, but oil is in the driver’s seat over the longer term,” said David Russell, global head of market strategy at TradeStation. “Energy saved the day in June, but that might become ancient history if the Strait of Hormuz doesn’t open soon.” The July inflation prints will determine whether the disinflation was a truce artifact or a genuine trend.