US Inflation Cools to 3.4% in July, Core Prices Stay Sticky
US CPI rose 3.4% year-on-year in July, easing from June's 3.5% pace, with core inflation at 2.5%.
The pace of US consumer price increases slowed in July, offering some relief to households and markets. The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 3.4% from a year earlier, a slight deceleration from the 3.5% annual gain recorded in June. On a monthly basis, headline inflation edged up just 0.1%, a moderation partly attributed to lower oil prices in June.
Core inflation, which strips out volatile food and energy categories, rose 0.2% month-on-month and 2.5% year-on-year. This reading was broadly in line with what economists had forecast. The data also showed that average hourly earnings slipped 0.2% compared with a year earlier.
Energy prices, a key driver of inflation this year, have shown mixed signals. Gasoline prices fell 2.9% in July, while electricity costs inched up 0.1%. However, global oil benchmarks have moved higher recently, with Brent crude futures trading near $90 a barrel and US crude approaching $84. The national average price for regular gasoline climbed to $4.03 per gallon on Wednesday.
Price increases were observed across several categories, including medical care, airline fares, communication, education, and recreation. Motor vehicle insurance was among the major indexes that declined.
The inflation report follows a weaker-than-expected July jobs report, which showed employers unexpectedly lost 23,000 jobs. Revisions to May and June payroll figures also shaved off a combined 103,000 jobs, painting a softer picture of the labor market.
Cleveland Fed President Beth Hammack had already called for timely action before the data release. "Now is the time to act," she wrote on LinkedIn. "The longer we wait to take action to bring inflation back to our 2 percent objective, the more challenging it will be to bring it back down and the more expensive it will be for the American people."
Analysts are divided on what the latest figures mean for financial markets. Some view the softer inflation reading as a positive sign, while others remain focused on persistent energy costs and the weakening jobs data. Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said the in-line inflation figure should keep the "no need to hike rates" narrative intact. She expects the Federal Reserve to hold interest rates steady in September unless August data presents a different picture.
Prediction markets currently assign a 68.2% probability that the Fed will keep rates unchanged at its September meeting, with a 17% chance of a 25-basis-point cut and a 9.6% chance of a hike.