Key Inflation Report Meets Expectations With Slightly Warmer Inflation
Key takeaways
- Headline inflation was at 3.2% for July
- Housing drove 90% of the gain, while motor vehicles and furniture dropped in price
- Jobless claims are at the highest level in a month, and the producer price index surprised on the upside at 0.8% for July
The Consumer Price Index for July revealed a small gain as expected, but the make-up of the report left the stock market shrugging off the headline bad news. Paired with the jobless claims data reaching new monthly highs and the producer price index coming in hotter than expected, the economy’s future is still uncertain. Here’s the latest.
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What did July’s CPI report look like?
The consumer price index (CPI) report, on the face of it, didn’t look great. Headline inflation rose by 0.2% to hit 3.2% for July, while core inflation, which strips out volatile food and energy prices, arrived at 4.7%.
That’s exactly why the context around that rise is so essential. That core inflation figure is the lowest it’s been in two years, while the headline inflation as the smallest back-to-back increase since the fall of 2021.
The Bureau of Labor Statistics also confirmed that 90% of the slight rise in inflation was down to shelter, which takes much longer than other areas of the economy to feel the effect of interest rate rises and therefore doesn’t concern the Federal Reserve too much.
The cost of used cars and furniture both declined, with the former being on the Fed’s watchlist as a potential inflation driver (pun not intended). Grocery prices have also slowed considerably, only gaining 0.3% in July.
Is there any other data to go on?
The latest jobless claims data reached 248,000, the highest weekly level in a month. Still, continuous jobless claims came in at 1.68 million, which was under the predictions from economists and well under the spring peak of 1.86 million.
The producer price index (PPI) data came in hotter than anticipated. The index climbed 0.8% on a year-by-year basis for July, which is higher than the 0.7% estimation and up from a 0.2% climb in June.
That being said, market confidence is still high that the Fed will keep interest rates the same at the next meeting in September. The CME FedWatch tool currently has a rate pause likelihood pegged at 88%.
The bottom line
Inflation has dominated the financial headlines for nearly two years, with markets desperate for interest rates to fall again. Whether that happens any time soon is anyone’s guess, but we’re increasingly looking as if there won’t be another rate hike for the rest of 2023.
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