CPI rose 3.2% in July as the Fed struggled to contain inflation
Consumer prices rose modestly in July on lower costs for goods, including used cars, as the Federal Reserve’s fight to contain inflation showed signs of progress.
The consumer price index – a closely watched measure of inflation that measures changes in the cost of basic goods and services – rose 3.2% in July from a year earlier, according to data released on Thursday.
July’s acceleration is slightly above June’s 3% annual price increase, but pales in comparison to June 2022, when inflation peaked at 9.1%, hitting a four-decade high.
The core CPI – which excludes volatile food and energy prices – rose 0.2% mom, up from 0.2% in June.
The flattening of the key indicator watched by the Fed could prompt central bankers to halt another rate hike when the agency meets next month.
The 3.2% increase in CPI was slightly less than the 3.3% expected by economists and remains above the Fed’s 2% target.
The core CPI rose 4.7% over the past 12 months, right in line with economists’ expectations.
Rising housing costs were by far the largest contributor to July’s price increase, accounting for 90% of the increase, the Bureau of Labor Statistics reported.
Indexes for auto insurance, education and leisure also remained strong.
The food index rose 0.2% in July, with beef the biggest gainer, up 2.4%. Fruits and vegetables are up 0.4% over the past month.
Energy prices, meanwhile, rose 0.1% despite problems at the pump as gas prices hit an eight-month high late last month.
Airfares, used cars and trucks, medical supplies and communications all fell over the past month, the report said.
The latest figures come after the Fed last month hiked rates another 25 basis points to a 22-year high, leaving the federal funds rate in a range between 5.25% and 5.5%.
Economists are divided on whether more rate hikes are imminent, especially since rating agency Fitch downgraded top-rated US Treasuries from AAA to AA+, citing the possibility that the economy could slide into a mild recession later this year.
This view contradicts the opinion of Fed officials, who have stated that they no longer forecast a recession.
“We have a chance” for inflation to return to target without large job losses, Powell said.
According to Jeffrey Roach, chief economist at LPL Financial, Thursday’s CPI numbers suggest that “the Fed should be able to keep interest rates steady as the economy shows slightly weaker economic growth.”
Bloomberg Economists have also predicted that the “July rate hike was the last before a prolonged pause”.
The Fed will also look at the July hiring report from the Labor Department to see if it has done enough to contain inflation.
Last month, U.S. employers added 187,000 jobs, the lowest number since the peak of COVID in 2020, although month-on-month unemployment was little changed at 3.5%.
The job market has shown surprising resilience in recent months, adding 209,000 jobs in June and a whopping 339,000 in May.
The US is currently enjoying a 30-month streak of monthly employment gains.
