US Inflation Cools Slightly in July, But Price Pressures Remain
US CPI likely rose 0.1% in July, easing annual inflation to 3.4%. Core prices are seen up 2.5% year-on-year, keeping Fed policy in focus.
US consumer prices are expected to have risen modestly in July, driven by a decline in gasoline costs, a development that could temper expectations for further Federal Reserve interest rate hikes this year.
The Labor Department's Consumer Price Index (CPI) report, due Wednesday, is forecast to show a 0.1% monthly gain, according to a survey of economists. That would follow a 0.4% drop in June, which marked the first decline in six years. On an annual basis, the CPI is projected to have advanced 3.4% in July, easing from a 3.5% rise in June.
The anticipated moderation is largely attributed to falling fuel prices. Gasoline averaged $4.064 a gallon in July, down from $4.184 in June and well below May's average of $4.609, according to Energy Information Administration data. Food prices are expected to have risen only marginally, while goods prices, including furniture and apparel, are likely to account for the modest overall increase.
Core inflation, which strips out volatile food and energy components, is forecast to have risen 0.2% in July after being unchanged in June. That would put the year-on-year core CPI at 2.5%. While this is an improvement, economists caution that price pressures remain uncomfortably high for households.
"It's an improvement, but both of those numbers are still extremely high and unpleasant for consumers," said Tani Fukui, an economist at MetLife Investment Management.
The high cost of living has weighed on public sentiment and could influence the upcoming midterm elections, as the administration's promise to lower inflation was a key factor in the previous presidential campaign.
Core inflation is expected to have been lifted by rebounds in used car and truck prices, as well as education and communication goods. Airfares are also seen rising, while rent increases are expected to be mild. Economists remain divided on whether hotel and motel prices will continue their decline.
Despite the cooling CPI, some analysts note that the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, may not show the same moderation due to different component weights. This has led some to maintain expectations for a rate hike in September.
"A report in line with our expectations would strengthen the case for the Fed hiking in September," said Stephen Juneau, a US economist at Bank of America Securities.