July Inflation - Rolling Over?

U.S. inflation decelerated more than expected in July on lower energy prices, which may reduce pressure on the Fed to continue on its aggressive rate hiking path.  The Consumer Price Index rose 8.5% from a year earlier, cooling from the 9.1% (40 year high) in June as a decline in gasoline prices offset increases in food and shelter costs.  At the July Fed meeting, Chair Jerome Powell held open the possibility of a third 75 bps rate increase in September depending on inflation and economic data released in the meantime.  Policymakers will have another round of CPI and jobs reports in August to consider before the September meeting.  While labor market strength provides some cushion for more aggressive policy moves, decelerating inflation levels may reduce the urgency in making them.

• Consumer prices (CPI) increased 8.5% year-over-year.  In July, the consumer price index (CPI) increased 8.5% compared to the same period a year ago, but decelerated from 9.1% in June.  Expectations ranged from 8.5% to 9.0% with a median of 8.7%.  Core CPI (excludes food and energy) increased 5.9% year-over-year, consistent with June, but down from a peak of 6.5% in March.  While price increases were broad-based, energy costs (+33%) including gasoline (+44%), and food (+11%) including groceries (+13%) were among the larger contributors to the year-over-year change.
• Consumer prices (CPI) unchanged month-over-month.  In July, consumer prices as measured by CPI registered no change compared to a 1.3% increase in June.  Expectations ranged from 0.0% to 0.4% with a median of 0.2%.  Monthly deceleration was led by lower energy costs (-4.6%) and in particular gasoline (-7.7%).  Shelter costs, which represent nearly one third of the consumer price index and tend to increase with a lag, increased 0.5%, consistent with the last six months.  Core CPI (excludes food and energy) increased 0.3% compared to June.