According to the recently released July consumer price index (CPI) report, consumer prices rose 0.2% in July, which is in line with expectations. Promisingly, annual inflation eased to just 2.9% in July, below projections of a 3% annual rate and June’s 3% level. It’s also the lowest annual inflation reading since March 2021.
Core Inflation, which excludes Food and Energy costs, increased 0.2% in July, reflecting a 3.2% yearly rate, both in line with forecasts.
Shelter costs increased 0.4% in July, making up about 90% of the total inflation increase in the month, at least for the all-items index.
The most important takeaway?
Well, for the most part, inflation is easing. July CPI represents the Federal Reserve’s final hurdle before it raises rates in September. As such, the report’s confirmation that inflation is moving downwards should beget a collective sigh of relief from Wall Street, which has been anxiously waiting for rates to come down practically all year.
Today’s report follows yesterday’s producer price index (PPI) inflation reading. The PPI increased just 0.1% in July and was up 2.2% year-over-year. Consumer prices tend to follow wholesale prices, which seemingly confirms the notion that price growth is slowing overall.
Stocks Waver Despite Encouraging CPI Report
While today’s CPI reading was certainly promising, it would be hard to tell, at least, looking at the stock market. Indeed, equity markets opened in the red today, with most major indices experiencing an early morning drop after several strong trading sessions in a row.
Still, there’s plenty of time for Wall Street to play catchup as analysts continue to pour over CPI data and make predictions for the September policy meeting.
Currently, traders are split almost 50-50 over whether the central bank will cut rates 25 basis points or 50 bp in September, per the CME FedWatch tool.
According to Richmond Fed President Tom Barkin, officials themselves are having the same debate, attempting to “figure out whether this is an economy that’s gently moving into a normalizing state that will allow you to, in a steady deliberate way, normalize rates…Or is this one where you really do have to lean into it?”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
