In this morning’s data, the Consumer Price Index (CPI) increased 0.1% in July, as expected, and was a rebound from the previous month’s decrease. On an annual basis, it grew 3.4%. The core rate, which excludes prices for food and energy, increased 0.2%, as expected, and grew 2.5% on an annual basis, which is slightly less than the previous month’s increase.
Looking at the individual categories, monthly prices for Medical Care Services, up 0.6%, were relatively strong while monthly prices for Gasoline, down -2.9%, and Fuel Oil, down -1.7%, were relatively weak. Prices for Shelter were up 0.1% in July, the same as the previous month’s increase.
Overall, a relatively muted report on inflation, with, as expected, slight increases in both the headline and core CPI measures. Prices for medical care rose in July, but that was offset by weakness for the second month in a row in gasoline and fuel oil; however, energy prices remain relatively high overall given the increases that occurred earlier this year. Shelter prices were unchanged in the month, staying at relatively low levels.
Inflation measures on an annual level are still above the Federal Reserve’s stated targets, and the labor market is likely also on the radar for the Fed given the weaker-than-expected payrolls report last week. Even with decreases in gasoline prices over the past couple of months, energy prices are still elevated compared to before the Iran conflict. This could continue to pressure consumers and may cause additional upward pressure on inflation if higher energy prices bleed further into other areas of the economy. How the Federal Reserve balances these variables in its policy and how well consumers continue spending will be keys for the economy and markets in the coming weeks.
In all, the 10-year U.S. Treasury yield is little changed following the report and equity futures are higher as we head into the market open.
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