Marking the first month of sub-3% inflation since March 2021, the headline CPI in July was 2.9%, matching the expectations of most market watchers. Over the 12 months ending July, the all items index increased 0.2% after declining 0.1% in June’s cooler-than-expected reading, today’s release from the Bureau of Labor Statistics shows.
The latest print bodes well for investors and consumers banking on Federal Reserve rate cuts occurring sooner rather than later. Federal Reserve Chairman Jerome Powell intimated in a press conference following the Federal Open Market Committee’s (FOMC) latest meeting that September rate cuts were on the table should the data cooperate. "We're nearing that time," he said.
National Association of Realtors (NAR) Chief Economist Lawrence Yun commented on Wednesday's inflation data, "The Fed has indicated the need to normalize and move away from the current 'restrictive' monetary policy and its willingness to cut if inflation moves towards 2% rather than waiting to reach 2%." However, heavy government deficit spending "could limit the decline in mortgage rates," he added. "More government borrowing means less mortgage money to lend. The new normal for mortgage rates will be around 6% and definitely not to 4% as was before COVID.”
Accounting for nearly 90% of the monthly increase in the all items index, shelter inflation rose 0.4% in July after increasing only 0.2% in June. On an annual basis, the shelter index increased 5.1%, accounting for more than 70% of the total 12-month increase in the core inflation index.
Core inflation (excluding volatile food and energy prices) remains higher than headline inflation at 3.2%; however, that index notched its smallest monthly increase since April 2021. The energy index increased 1.1% for 12 months ending July and the food index rose 2.2%.
The energy index was unchanged over the month of July, after declining in the two preceding months. The index for food increased 0.2% in July, as it did in June.
