July CPI: Gasoline Eases 2.9% but Energy Costs Stay Near Highs

A cooler July, with a catch

Inflation cooled again in July. Underneath that headline, though, the energy picture was splitting in two. Gasoline was cheaper on average than in June, yet still far above last year's level. Wholesale natural gas fell toward the bottom of its range. Electricity, meanwhile, is coming under steady pressure from data center construction. Seen together, these pieces suggest the relief households felt in July was real but fragile, and in some areas it may already be ending.

The Consumer Price Index rose 0.1% from June to July and 3.4% from a year earlier, matching economists' forecasts.4 Core inflation, which leaves out food and energy, rose 0.2% for the month and 2.5% for the year, down from 2.6% in June.2 July was the second straight month of cooling after the annual rate reached 4.2% in May, when the war with Iran sent oil prices up and gasoline with them.1 June's index had actually fallen 0.4%, which made July's small gain look like a pause rather than a renewed climb.6

The reports agree on the main numbers. They differ in tone. CBS News opened its energy coverage with the yearly figure: energy prices up 14.7% and gasoline up 24.6% over twelve months.1 The New York Times instead noted that energy fell 1.5% from June, while adding that it remained nearly 15% higher than a year ago.3 Both are accurate. Which number matters depends on whether you are asking where prices are heading or where they are now. For drivers, the level is the more honest measure.

Gasoline: cheaper on average, rising by the end of the month

The gasoline index fell 2.9% in July.2 The monthly average hid a sharp reversal within the month. Just before July 4, AAA reported a national average of $3.83 a gallon, nearly 50 cents lower than a month earlier, with West Texas Intermediate crude around $68.23 That decline followed a June 18 memorandum of understanding between Washington and Tehran that reopened shipping through the Strait of Hormuz.26

The relief did not hold. By July 9, after uncertainty over the ceasefire returned, the national average had begun rising again and crude was trading in the $70s.29 A week later the average was $3.94 and crude was near $80.25 On July 23 it reached $4.09, a weekly jump of 15 cents, and AAA said most states were back at or above $4.21 It was still $4.09 on July 30, almost a dollar higher than the $3.14 a year earlier.24 GasBuddy's Patrick De Haan cited several causes for the increase: renewed fighting between the U.S. and Iran, Houthi attacks in the Red Sea, and Ukrainian strikes on Russian refineries.30

This is why the July CPI figures were partly out of date the day they came out. Yahoo Finance noted that pump prices averaged slightly less than in June even though energy prices rose over the course of the month.6 On the day of the release, AAA's average stood at $4.04.3

Crude oil and an outdated forecast

The U.S. Energy Information Administration's July outlook shows how quickly expectations shifted. Shortly after the Hormuz agreement, the agency forecast that gasoline would average about $3.60 a gallon in the second half of 2026 and that Brent crude would average $74 a barrel in the third quarter.26 The forecast assumed global oil output would recover to near pre-conflict levels by the end of the year.26

That projection did not survive the summer. In September, according to the EIA's later outlook, gasoline averaged $4.35 a gallon and diesel $6.29, driven by higher crude prices and wider refining margins.12 AAA's national average was about $4.47 in mid-September.21 The August CPI followed the same pattern. Headline inflation held at 3.4%, gasoline's annual increase widened to 27.4%, and fuel oil jumped 52% from a year earlier.5

The takeaway is that July's softer reading reflected a short break in the oil shock, not the end of it. Moody's Analytics economist Mark Zandi told CBS that inflation could approach the Federal Reserve's 2% goal within a year, but only if the Iran war did not flare up again.1 That condition was not met.

Natural gas: cheap at the hub, pricier on the bill

Natural gas tells a different story than oil. EIA data show that the Henry Hub benchmark averaged $2.93 per million British thermal units in July, down from $3.15 in June. Wholesale prices at most hubs sat near the low end of their annual ranges.20 The New York Times noted, however, that consumer electricity and utility gas prices rose slightly from June even as gasoline and diesel fell.3

The main reason is that the fuel is no longer the main cost driver. The EIA's October outlook expects Henry Hub to average $3.48 in 2026 and $3.16 in 2027. The agency attributes that path to above-average storage, as rising production keeps pace with growing liquefied natural gas exports.11 The annual figure is pulled up by January, when Winter Storm Fern pushed the average to $7.72.11 Early October spot prices were around $3.12 to $3.18.16

Even so, the EIA expects wholesale electricity to average $52 per megawatt-hour in 2026, 11% higher than in 2025. It cites extreme weather and a hot summer, and it projects a 41% jump in the PJM region.12 That regional figure is where data centers come into the picture.

Data centers: a cost that moves slowly

Data centers do not appear in the CPI, but they increasingly shape the electricity part of it. PJM's capacity auctions have cleared at the price cap three years in a row. The grid operator estimates the June 2026 increase alone adds 1.5% to 5% to bills in Ohio, Pennsylvania, New Jersey and Washington, D.C., and analysts at IEEFA name projected data center load as the main cause.19 Put simply, cheap gas helps keep the energy portion of bills down, while capacity and delivery charges push the total up.19

Demand projections continue to grow. The EIA projects U.S. electricity use rising from a record 4,195 billion kilowatt-hours in 2025 to 4,268 billion in 2026 and 4,391 billion in 2027, with AI and crypto data centers among the main drivers.15 It expects commercial-sector demand, which includes data centers, to rise 2.8% in 2027.11 BloombergNEF more than doubled its estimate of the extra gas data centers will need. The additional demand would exceed the gas use of every country except China, Russia, Iran and the United States.17 Goldman Sachs projects U.S. data center power demand rising about 160% by 2030 from 2023 levels.16

Forecasters disagree on what this means for gas prices. Bullish bank scenarios put Henry Hub at $4 to $5 or more. The EIA's base case keeps it near $3.16 Our reading: in the near term, plentiful supply wins, and gas stays cheap. The pressure from data centers shows up instead in capacity markets and utility rate cases, which take months or years to reach consumer bills. One analysis put it this way: the gains are going to owners of existing nuclear and gas plants, not to ratepayers.13

What it means for households and the Fed

For households, July brought some real relief outside energy. Grocery prices fell 0.1% for the month, rent growth slowed, and prescription drug prices were 3.1% lower than a year earlier.3 Beef and coffee were still up 9.4% and 10.3% from a year ago.6 Wages rose 3.2% over the year, below the 3.4% inflation rate, so workers kept losing purchasing power.1

At the Federal Reserve, the July report briefly lowered the odds of a September rate hike. The report itself was in line with forecasts, and July payrolls showed a loss of 23,000 jobs.14 That calm did not last. When August core CPI came in hotter than expected at 0.3%, the market-implied odds of a hike reportedly rose from about 70% to about 90%.9

The overall picture is that July marked the low point of a period that has since turned. Gasoline went back above $4, crude moved with each development in the Middle East, and electricity costs began to reflect demand from data centers rather than the price of fuel. For consumers, the most persistent energy costs may now be the ones that change least from month to month.