U.S. Consumer Prices Rise Modestly in July, Potentially Weakening Case for Fed Rate Hike
Key Takeaways
- •The Consumer Price Index rose 0.1 percent in July, following a 0.4 percent decline in June that was the first such monthly drop in six years.
- •Annual headline inflation slowed to 3.4 percent through July while core inflation excluding food and energy increased 2.5 percent year-over-year.
- •Core inflation remains above the Federal Reserve's 2 percent target despite continued moderation from the multi-decade highs observed in 2022.
- •Prior to the CPI release, financial markets had assigned approximately a 46 percent probability to a rate hike at the Fed's September policy meeting.
- •Federal Reserve policymakers will receive August CPI and employment reports before their September meeting, with economists expecting both inflation and job growth to rebound.
WASHINGTON — U.S. consumer prices edged up slightly in July, potentially weakening the argument for an interest rate increase from the Federal Reserve at its next policy meeting.
The Consumer Price Index (CPI) rose 0.1 percent in July, following a 0.4 percent decline in June — the first such drop in six years — according to data released Wednesday by the Labor Department's Bureau of Labor Statistics.
Over the 12 months through July, the CPI advanced 3.4 percent, down from a 3.5 percent annual rate in June. Excluding the volatile food and energy components, the so-called core CPI gained 0.2 percent last month after being unchanged in June. The year-over-year core CPI increased 2.5 percent through July, compared with a 2.6 percent rise in June. While the moderation marks continued progress from the multi-decade highs reached in 2022, core inflation remains above the Federal Reserve's 2 percent target, suggesting underlying price pressures have not fully abated.
Economists polled by Reuters had forecast both the headline CPI and core inflation each rising 0.1 percent and 0.2 percent respectively over the month, meaning the report broadly met market expectations.
The Federal Reserve, the U.S. central bank, tracks the Personal Consumption Expenditures (PCE) price indexes — rather than the CPI — for its 2 percent inflation target. The Fed last month left its benchmark overnight interest rate in a range of 3.5 percent to 3.75 percent. The Fed operates under a dual mandate from Congress to maintain price stability and maximum employment, meaning both inflation and labor market data factor into its policy decisions.
The CPI report followed news last week of surprise job losses in July. The combination of cooling inflation and softening employment conditions complicates the Fed's calculus, as aggressive tightening risks further labor market weakening while persistent inflation above target could require additional restraint. Prior to the inflation data release, financial markets had priced in a roughly 46 percent probability of a rate hike at the Fed's September 15–16 policy meeting, according to CME's FedWatch tool.
Federal Reserve policymakers will still receive August's CPI and employment reports before the September meeting. Economists expect consumer price increases to accelerate in August, reflecting a recent rise in oil prices. Job growth is also projected to rebound as seasonal distortions subside.
Source: The Korea Times
