Key inflation gauge remains elevated during Iran war and ongoing US trade fights

WASHINGTON (AP) — An inflation measure closely watched by the Federal Reserve was unchanged last month in the latest sign that many Americans are still struggling with higher costs.

The Commerce Department's Wednesday report showed that prices rose 3.7% in July compared with a year earlier. Inflation has worsened since the Iran war began in late February, when it stood at 2.9%. It's noticeably above the Fed's target of 2%.

Stubbornly high prices are shaping up to be a key issue in the midterm elections, particularly as the Iran war keeps gas prices high , President Donald Trump is threatening new tariffs on Canada and China , and spending on AI infrastructure has pushed up the cost of computers, gaming consoles, and semiconductors.

Wednesday’s inflation figures are unlikely to fully resolve a split at the Federal Reserve, where most officials are willing to hold interest rates steady to see if inflation can cool on its own. But many officials have supported raising rates to slow borrowing and spending and combat higher prices. New Fed Chair Kevin Warsh will deliver a high-profile speech Friday in Jackson Hole, Wyoming that will be closely watched by Wall Street for any signs of his thinking about next steps.

Excluding the volatile food and energy categories, core inflation was also unchanged at 3.3% in July.

On a monthly basis, overall inflation rose 0.2% from June to July, after declining 0.1% the previous month and jumping 0.5% in May. Core prices also moved up 0.2% from June to July, higher than 0.1% in the previous month. Some Fed officials have said that core inflation running at about 0.2% a month would be a reassuring sign that inflation is heading back to the 2% target.

Still, gas prices have rebounded this month, which will likely push up inflation when the August figures are reported next month. And many Fed officials worry that with inflation topping their target for more than five years, higher rates may be necessary to get price increases under control.