A Watch Report on U.S. inflation showed that consumer price increases were in line with expectations during July, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.
The consumer price index (CPI) rose 0.2% from the previous month, expanding from a 0.1% decline in June due to a pick-up in energy prices. Monthly price increases were in line with economists’ expectations.
The index rose 2.9% year-on-year in July, slightly slower than the 3% annualized price rise in June, and also faster than economists expected for an annualized 3% rise.
A drop below 3% would be the lowest annual rate since spring 2021.
On a “core” basis, which excludes volatile food and gas prices, July prices rose 0.2% from the previous month and 3.2% from a year earlier, in line with economists’ expectations. Core prices in June rose 0.1% from the previous month, and rose 3.3% on an annual basis.
The market soared after this report. The 10-year US Treasury yield (^TNX) was trading little changed at around 3.85%.
Inflation remains above the US Federal Reserve’s annual target of 2%. But recent economic data, such as the July jobs report that prompted a sell-off, has helped strengthen the case that the central bank should cut rates sooner rather than later.
Read more: What the Fed’s interest rate decisions mean for bank accounts, CDs, loans, and credit cards
Notably, according to the Fed’s recommended inflation measure, the so-called core PCE price index, June’s inflation rate was unchanged from the previous month, and the annual rate of increase in core PCE was the lowest in more than three years.
Immediately after Wednesday’s inflation report, markets were pricing in a nearly 100% chance that the U.S. Federal Reserve would cut interest rates by the end of its September meeting. However, the odds of a 50-basis point rate cut or a 25-basis point rate cut are now roughly 40/60 split, according to the CME FedWatch tool, compared to the 70/30 odds placed by traders last week.
“I think this report is a green light for the Fed in September,” Nathan Sheets, global chief economist at Citi, told Yahoo Finance’s The Morning Brief.
He noted that the situation remained tense as to whether the central bank would cut interest rates by 25 basis points (bp) or 50 basis points (bp), adding that the He added that sales statistics will be important data to look at.
“Today’s CPI results remove a lingering inflation bottleneck that may have prevented the Fed from starting its September rate cutting cycle,” said Seema Shah, chief global strategist at Principal Asset Management. “However, the numbers also suggest that the urgency of 50 basis points is limited.” point cut. ”
story continues
“With supercore inflation rising since last month and a sustained slowdown in shelter inflation yet to materialize, a gradual reduction in policy rates is all the Fed can offer at this point, and is likely to happen.” It might be all you need.”
sticky shelter, food prices
One notable aspect of inflation statistics is the shelter index. The index rose 5.1% on an unadjusted annualized basis, slowing slightly from June. The index rose 0.4% from the previous month, and rose 0.2% in June.
Economists say the rise in core inflation is mainly due to sticky shelter inflation.
Print sales in July reversed the previous month-on-month cooling trend, with the rent index and owner-equivalent rent (OER) index increasing by 0.5% and 0.4%, respectively, from June to July. Owner’s equivalent rent is the hypothetical rent that a homeowner would pay for the same property.
The non-home accommodation index rose 0.2% in July after falling 2% in June.
Meanwhile, the energy index was flat in July after falling 2% in the previous month as gasoline prices reversed their recent decline. On a yearly basis, the index rose by 1.1%. Gasoline prices were flat from June to July after falling 3.8% in the previous month.
The July food index rose 2.2% from last year, with food prices up 0.2% month-on-month, proving to be a troublesome category for inflation. From June to July, the index for food at home increased by 0.1%, and the index for food outside the home increased by 0.2%.
Other indicators that showed significant increases over the past year in July include auto insurance (18.6%), medical care (3.2%), personal care (3.4%), and recreation (1.4%).
Used cars and trucks, medical care, airfare and clothing were among the indexes that fell during the month, according to the BLS.
The next update on consumer price increases will be released on Wednesday morning. (AP Photo/David Zarbowski, File) (ASSOCIATED PRESS)
Read the latest news on inflation.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canalEmail LinkedIn, alexandra.canal@yahoofinance.com.
Click here for the latest stock market news and in-depth analysis, including price-moving events
Read the latest financial and business news from Yahoo Finance
