The underlying U.S. inflation Inflation declined for the fourth month on an annual basis in July, keeping it stable. federal Reserve on the way to reducing Interest Rates Next month.
The so-called core consumer price index — which excludes food and energy costs — rose 3.2% in July from a year earlier, still the slowest pace since the start of 2021. Data from the Bureau of Labor Statistics on Wednesday showed the monthly measure rose 0.2%, a slight acceleration from June’s surprisingly low reading.
Economists consider the core gauge a better indicator of underlying inflation than the overall CPI. That measure also rose 0.2% from the previous month and 2.9% from a year earlier. About 90% of the monthly increase was due to sheltering in place, which accelerated from June, the BLS said.
Inflation is still broadly on the downside as the economy slowly shifts into lower gear. With a softening job market, the Fed is widely expected to begin cutting interest rates next month, with the size of the cut likely determined by more data to come.
“Both investors and policymakers will find this report to be largely good for the market and the economy,” said Jeffrey Roach, chief economist at LPL Financial. “As inflation eases, the Fed can legitimately cut rates, yet keep policy restrictive overall.”
Ahead of the September meeting, officials will get more inflation data, as well as another employment report – which will be closely scrutinised since July's disappointing numbers sparked a global market sell-off and fuelled recession fears.
Fed Chairman Jerome Powell and his colleagues have said recently that they are focusing more on the labor side of their dual mandate, which they are likely to emphasize at their annual symposium in Jackson Hole, Wyoming, next week.
The S&P 500 fluctuated and the two-year Treasury yield — which is most sensitive to Fed policy — rose. Traders bet a 50 basis point rate cut in September was unlikely.
Although the BLS reports figures to one decimal point, Fed officials and economists prefer to look further ahead for a better estimate of inflation. On a two-decimal basis, Core CPI rose by 0.17%. And to understand the recent trend, the three-month annual figure rose by 1.58%, the lowest since February 2021.
The most disappointing part of the report was shelter prices, which economists and policymakers were widely expecting would help push inflation closer to the Fed's target. Shelter, the largest category within services, jumped 0.4% after 0.2% in June, which was the lowest since 2021 and was considered the start of a long-awaited recession.
In sheltered homes, owner-equipped rent — the largest individual component of the CPI — also rose 0.4%. Rent for primary residences rose 0.5%, the most since February.
Other categories were more encouraging, especially for consumers. Prices of clothing, new and used cars, and airfares fell last month. Hospital services saw a record drop. Petrol prices fell the most in recent months.
Meanwhile, video game subscription services grew by the most ever after recording a sharp decline in May.
Excluding housing and energy, service prices rose 0.2%, the first increase in three months, but still a slow pace, according to Bloomberg. While central bankers have stressed the importance of looking at such metrics when assessing the country’s inflation trajectory, they calculate it based on a different index.
This measurement, known as the Personal Consumption Expenditures Price Index, doesn't place as much emphasis on shelter as the CPI does — and that's why the PCE gauge has been trending closer to the Fed's 2% target.
The PCE measure released later this month is derived from the CPI as well as certain categories within the producer price index. Those parts of the PPI were largely muted in July, and the core figure rose less than forecast, according to government data released Tuesday.
The PPI decline was driven by weak margins at wholesalers and retailers — which confirms companies' claims that they are losing pricing power — as well as recent discounting and promotional activity such as Amazon.com Inc.'s Prime Day. From restaurants to airlines, businesses recognize that consumers are being more prudent in their spending, especially for discretionary purchases.
A steady decline in commodity prices over most of last year has provided some relief to consumers. Excluding food and energy items, prices of so-called core commodities have fallen the most since the beginning of the year. On an annual basis, they have fallen the most since 2004.
A separate report released on Wednesday combined inflation data with recent wages data, showing that real income growth in July slowed compared with a year earlier.
The so-called core consumer price index — which excludes food and energy costs — rose 3.2% in July from a year earlier, still the slowest pace since the start of 2021. Data from the Bureau of Labor Statistics on Wednesday showed the monthly measure rose 0.2%, a slight acceleration from June’s surprisingly low reading.
Economists consider the core gauge a better indicator of underlying inflation than the overall CPI. That measure also rose 0.2% from the previous month and 2.9% from a year earlier. About 90% of the monthly increase was due to sheltering in place, which accelerated from June, the BLS said.
Inflation is still broadly on the downside as the economy slowly shifts into lower gear. With a softening job market, the Fed is widely expected to begin cutting interest rates next month, with the size of the cut likely determined by more data to come.
“Both investors and policymakers will find this report to be largely good for the market and the economy,” said Jeffrey Roach, chief economist at LPL Financial. “As inflation eases, the Fed can legitimately cut rates, yet keep policy restrictive overall.”
Ahead of the September meeting, officials will get more inflation data, as well as another employment report – which will be closely scrutinised since July's disappointing numbers sparked a global market sell-off and fuelled recession fears.
Fed Chairman Jerome Powell and his colleagues have said recently that they are focusing more on the labor side of their dual mandate, which they are likely to emphasize at their annual symposium in Jackson Hole, Wyoming, next week.
The S&P 500 fluctuated and the two-year Treasury yield — which is most sensitive to Fed policy — rose. Traders bet a 50 basis point rate cut in September was unlikely.
Although the BLS reports figures to one decimal point, Fed officials and economists prefer to look further ahead for a better estimate of inflation. On a two-decimal basis, Core CPI rose by 0.17%. And to understand the recent trend, the three-month annual figure rose by 1.58%, the lowest since February 2021.
The most disappointing part of the report was shelter prices, which economists and policymakers were widely expecting would help push inflation closer to the Fed's target. Shelter, the largest category within services, jumped 0.4% after 0.2% in June, which was the lowest since 2021 and was considered the start of a long-awaited recession.
In sheltered homes, owner-equipped rent — the largest individual component of the CPI — also rose 0.4%. Rent for primary residences rose 0.5%, the most since February.
Other categories were more encouraging, especially for consumers. Prices of clothing, new and used cars, and airfares fell last month. Hospital services saw a record drop. Petrol prices fell the most in recent months.
Meanwhile, video game subscription services grew by the most ever after recording a sharp decline in May.
Excluding housing and energy, service prices rose 0.2%, the first increase in three months, but still a slow pace, according to Bloomberg. While central bankers have stressed the importance of looking at such metrics when assessing the country’s inflation trajectory, they calculate it based on a different index.
This measurement, known as the Personal Consumption Expenditures Price Index, doesn't place as much emphasis on shelter as the CPI does — and that's why the PCE gauge has been trending closer to the Fed's 2% target.
The PCE measure released later this month is derived from the CPI as well as certain categories within the producer price index. Those parts of the PPI were largely muted in July, and the core figure rose less than forecast, according to government data released Tuesday.
The PPI decline was driven by weak margins at wholesalers and retailers — which confirms companies' claims that they are losing pricing power — as well as recent discounting and promotional activity such as Amazon.com Inc.'s Prime Day. From restaurants to airlines, businesses recognize that consumers are being more prudent in their spending, especially for discretionary purchases.
A steady decline in commodity prices over most of last year has provided some relief to consumers. Excluding food and energy items, prices of so-called core commodities have fallen the most since the beginning of the year. On an annual basis, they have fallen the most since 2004.
A separate report released on Wednesday combined inflation data with recent wages data, showing that real income growth in July slowed compared with a year earlier.