Announced this morning, the Consumer Price Index was unchanged in July and increased 8.5% on an annual basis, both less than expected. Monthly prices for Fuel Oil, down -11.0%, and Gasoline, down -7.7%, were the leading decliners. The core rate, which excludes prices for food and energy, increased 0.3% in June, less than expected, and increased 5.9% on an annual basis, as expected.
Overall, monthly changes in the headline and core levels of inflation were less than expected and lower than the previous month. While the start of slowing monthly figures is welcomed, overall inflation data points remain very elevated and will take time to return to normal levels. Given this dynamic and last week’s surprisingly strong payrolls report, the Federal Reserve should be steadfast in tightening policy in the coming weeks, through both interest rate increases and the ongoing reduction of their balance sheet. The ability of consumers to handle higher price levels as inflation slowly moderates along with policy tightening will be a key factor for the economy in the coming months.
In all, the 10-year US treasury yield ticks lower and equity futures move higher following the report.
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