Consumer price growth in the U.S. has decelerated to its slowest pace since 2021, according to the latest data from the Bureau of Labor Statistics.
- M-O-M: In July, consumer prices rose by 0.2%, a slight increase from the 0.1% rise recorded in June, marking the largest gain since April.
- Y-O-Y: Despite this uptick, the year-over-year growth in home prices has slowed to 2.9%, down from 3.0% in June, marking the lowest level since March 2021.
Food & Energy: Food prices saw a modest increase of 0.2% for the second consecutive month in July, keeping the annual food price index steady at 2.2%. This marks the fifth time this year that the annual index has remained at this level, reflecting a stabilization in food price inflation.
- Energy prices remained flat in July following two months of declines. The annual energy index showed a slight rise, edging up to 1.0% from 0.9% in June.
Core prices, which exclude the more volatile food and energy sectors, rose by 0.2% in July, up from the 0.1% increase in June. Despite this, the annual core index slowed to 3.2% in July, down from 3.3% in June, marking the lowest level since April 2021.
- Used cars & trucks continue to put downward pressure on core prices. Prices for used cars & trucks fell 2.3% in July, the biggest drop since January and the fifth time this year prices have fallen month-over-month. Prices are now down 10.9% year-over-year.
For potential homebuyers, there is more good news as shelter costs have fallen to their lowest level in over two years. Although prices did increase by 0.4% from June, up from the 0.2% rise in the previous month, the year-over-year index slowed to 3.2% in July, down from 3.3% in June, the lowest level since April 2022.
Market Reaction: Economists had accurately predicted both the headline consumer price increase and the growth in core prices, reflecting a stabilization in economic conditions. In response to the report, bond markets remained mostly unchanged, and the CME FedWatch Tool indicates that the next Federal Reserve rate cut is a toss-up, with odds evenly split between a 25 and 50 basis point reduction.
What They’re Saying: Nick Timiraos, of the Wall Street Journal. noted on Twitter, “The July CPI extends a run of much cooler inflation and makes a September rate cut from the Fed as close to a lock as these things get.” He did note that this report does not tell us how big the cut will be, “This report doesn’t resolve the debate over whether to start with 25 bps vs 50 bps. To get 50 bps, you’d probably need to see something bad in the labor market.”
- Ben Casselman of the New York Times, pointed out on Twitter that thinks get even better when you zoom in. “Inflation has looked even better when you zoom in on the most recent period. Over the past three months, prices have risen at an annual rate of just 0.4 percent.”
