Inflation rose 3.2% annually in July, lower than expected

The consumer price index rose 3.2% in July from a year earlier, a sign that inflation has lost at least some of its grip on the US economy.

Prices rose a seasonally adjusted 0.2% for the month, in line with Dow Jones estimates. bureau of labor statistics report Thursday. The annual rate, however, was slightly below the 3.3% forecast, although higher than in June and the first increase in more than a year.

Excluding volatile food and energy prices, the so-called core CPI also rose 0.2% for the month, which matched estimates and equated to a 12-month rate of 4.7%, the lowest since October 2021. The annualized rate for the core was also slightly below the Dow Jones consensus estimate for 4.8%.

market reacted positively to the reportFutures tied to the Dow Jones Industrial Average are more than 200 points higher and Treasury yields are mostly lower.

“It is not yet ‘mission accomplished’, but significant progress has been made on the inflation front,” said Sung Won Sohn, chief economist at SS Economics and professor of economics and finance at Loyola Marymount University. “On balance, the inflation picture has improved significantly. The Federal Reserve will soon stop raising interest rates.”

Nearly all of the monthly inflation increase came from shelter costs, which rose 0.4% and were up 7.7% from a year earlier. Rents rose 0.4%, the BLS said, with more than 90% of the increase coming from that category, which makes up about a third of the CPI weighting.

Food prices rose 0.2% in the month, and energy rose only 0.1%, the BLS said, although crude oil prices rose during the month and prices at the pump also jumped.

Used vehicle prices declined 1.3% and medical care services declined 0.4%. Airline fares fell 8.1% this month, the same as June, and down 18.6% from a year earlier after rising earlier. covid pandemic,

“While it would be fair to say prices are still relatively high in places like shelter and used cars, we are seeing a rate of change that is encouraging for consumers as well as Federal Reserve policymakers,” said chief investment Rick Ryder. Global Fixed Income Officer at asset management giant BlackRock.

'Squawk on the Street' crew reacts to July's CPI report

Relatively controlled inflation levels helped in raising employee wages. real wages That was an increase of 0.3% in the month and a 1.1% increase from a year earlier, the BLS said in a separate release.

The annual rate of headline inflation, though lower than expected, actually registered an increase from the 3% level in June.

Taken together, the latest batch of data suggests that while inflation has eased well above its 40-year high in mid-2022, it is still well above the 2% level the Federal Reserve wants to see it and So high that the interest may get deducted. Rates are not likely to come down in the near future.

“While inflation is trending in the right direction, the elevated level suggests the Fed is some distance away from cutting rates,” said Seema Shah, chief global strategist at Principal Asset Management. “Indeed, deflation is unlikely to smooth out and some additional economic suffering will be needed before the 2% target is permanently reached.”

However, the falling levels are at least easing some of the pressure on the Fed to keep policy tight.

After raising benchmark interest rates 11 times since March 2022, central bank officials are widely expected to take a break in September. However, it is debatable what happens from there, and public statements from policy makers have shown disparate opinions.

Earlier this week, regional Fed President John Williams of New York and Patrick Harker of Philadelphia made comments that indicated they could eventually see a rate hike. However, Governor Michelle Bowman said she expected more increases, while fellow Governor Christopher Waller also pointed to the potential need for further increases.

Regardless of whether the Fed approves any additional hikes, virtually all members agree that higher rates are likely to remain in place for some time.

Higher rates haven’t yet dented economic growth: The first two quarters see GDP growth of 2% and 2.4%, respectively, in the first half of 2023, and the Atlanta Fed eyes third-quarter growth of 4.1% is keeping , Payroll gains are slowing but still solid, and unemployment is at its lowest level since late 1969.

Consumers are starting to get a little stressed and are increasingly turning to credit cards and savings for their spending. Total credit card debt exceeded $1 trillion for the first time this year, according to data from the New York Fed.

However, more economists are beginning to expect that the US can avoid recession despite aggressive rate hikes. Bank of America, Goldman Sachs and JPMorgan Chase have all recently forecast that the likelihood of a contraction is diminishing.

Correction: The annual inflation rate was higher than June. The historical connection was incorrectly reflected in an earlier version.,

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