U.S. consumer prices in July rose in line with market expectations and slowed slightly from the previous month. Core inflation, which excludes food and energy, also eased, and there was no inflation shock that would raise the need for another rate hike by the Federal Reserve (Fed) next month.
The Bureau of Labor Statistics (BLS) said on the 12th (local time) that the consumer price index (CPI) for July rose 3.4% from a year earlier. The year-over-year increase was 0.1 percentage point (p) lower than June's 3.5%. However, prices rose 0.1% from the previous month. After falling 0.4% month over month in June, the CPI returned to an uptrend in a month. The July CPI increase matched Reuters' consensus forecasts on both a year-over-year and month-over-month basis.
Core CPI, excluding volatile food and energy, rose 0.2% from the previous month, widening from June's flat reading. It climbed 2.5% from a year earlier, slowing from June's 2.6%. Core CPI also matched the consensus on both a monthly and annual basis.
By category, shelter costs rose 0.1% from the previous month, accounting for about two-thirds of the overall increase, though the gain itself was modest. Food prices rose 0.1%, with prices for dining out up 0.3%. By contrast, energy prices fell 1.5% from the previous month. However, they surged 14.7% from a year earlier, showing that the impact of the armed conflict with Iran early in the year is still being reflected.
This CPI is a key gauge for assessing whether the Fed will raise rates further ahead of the September Federal Open Market Committee (FOMC) meeting. Following an unexpected decline in nonfarm jobs last month and a slowdown in consumer inflation, the need for additional rate hikes is seen as somewhat reduced.
However, U.S. inflation is still above the Fed's target level. The personal consumption expenditures (PCE) price index, which the Fed mainly uses to assess inflation, differs from the CPI in its component weights, and the rise in energy prices due to the Middle East war could be reflected in inflation again going forward.
The BLS is scheduled to release the August CPI on the 11th of next month. It will be the last CPI reading the Fed can review before the September FOMC.