American families finally saw some financial relief in June as prices at the pump fell. Those lower fuel prices pulled down the consumer price index (CPI) by 0.4% in June, the largest monthly decline since April 2020. But don’t pop the champagne corks just yet, because that improvement has started reversing this month.
Alas, June’s lower prices weren’t the triumph of sound monetary or fiscal policy, but a peace dividend that effectively reversed price increases from May. The annual inflation rate, as measured by the CPI, fell from 4.2% to 3.5%, led by energy prices cratering 5.7% in a single month, with gasoline down almost 10%.
Energy prices were lower because the June 17 memorandum of understanding with Tehran delivered a ceasefire and the Strait of Hormuz—the passageway for one-fifth of the world’s crude oil—began reopening. Tanker traffic climbed back toward 18 to 22 transits a day, and crude prices retreated to pre-war levels, directly impacting the June CPI data.
The producer price index (PPI) told the same story, as it declined 0.3% in June, with goods specifically down 1.4%, led by gasoline and diesel prices tumbling 12.0% and 18.0% respectively. But these sharp monthly declines were more reprieve than recovery, as gas and diesel prices in the PPI were still up 42.9% and 65.8%, respectively, from a year ago.
Furthermore, the reprieve is over. With fighting reignited this month, Brent—the global benchmark for crude prices—has surged back above $85 a barrel, having jumped nearly 10% in a single day. Strait traffic collapsed from roughly 20 daily transits to as few as six—versus roughly 130 before the war—with no large vessel making a traceable crossing on the southern route in over a week.
Every day that the Strait stays effectively closed, July’s coming CPI report only gets uglier, which is more pain for consumers.
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Worse, many shock absorbers are gone. The Strategic Petroleum Reserve was drawn down by about 100 million barrels to cushion the earlier disruption, leaving little buffer for a rerun of March and April, when crude blew past $100 a barrel.
Commercial stockpiles are no better. The tanks at Cushing, Okla., the pipeline crossroads of North America, have been drained to roughly 20 million barrels, effectively their minimum operational level.
And don't expect foreign supply to ride to the rescue. Ukrainian strikes on Russian oil infrastructure in recent days—Ukraine has now hit every one of Russia's 10 largest refineries this year—have slashed Russian exports of crude and refined fuel precisely when the world needs every barrel.
Less supply from the Gulf, less supply from Russia, and empty tanks at home are a recipe for sustained triple-digit oil, which cascades down through trucking, farming, and airfares, and lands on every grocery shelf in America.
That’s why reopening the Strait of Hormuz is not merely a foreign policy objective but the single most important anti-inflation policy available to Washington right now. Every week of closure adds another layer of costs to the family budget.
And let's be honest about the damage already done. Four months of disruption have blown holes in global supply chains that no ceasefire can instantly repair. Qatar supplies roughly a third of the world's helium—critical for semiconductors, MRI machines, fiber optic cables, and more—and attacks have knocked out a share of its gas infrastructure for years, not months.
Then there are Gulf exports of sulfur and sulfuric acid, fertilizer, aluminum, and the petrochemical feedstocks behind everyday plastics—all of which have been choked off. Those shortages are now baked into the cake in the coming weeks and months. That means higher prices for chips, medical care, food, and countless consumer goods, even if the Strait opens tomorrow.
But that’s no excuse for making future inflation even worse. The June CPI and PPI reports proved how quickly peace translates into price relief. Reopen the Strait now, and keep it open, and the coming price increases will be at least somewhat countered, instead of compounded, by lower fuel costs, not higher ones.
E.J. Antoni, Ph.D., is chief economist at the Heritage Foundation and senior fellow at Unleash Prosperity.
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