Consumer prices rose modestly in July, with the latest data showing inflation continuing to cool gradually — though it remains above the Federal Reserve’s 2% annual goal.
The Consumer Price Index rose 0.1% in July on a seasonally adjusted basis, according to the latest government data, putting the year-over-year pace at 3.4%. The reading signals that inflation is still easing, but progress has been uneven and slow.
So-called core inflation — which strips out food and energy prices because they tend to swing sharply month to month — came in at 0.2% for July. Over the past year, core prices are up 2.5%. That figure is closely watched by the Fed because it gives a cleaner read on where underlying price pressures are heading.
Shelter costs — which include rent and the estimated cost of owning a home — were a notable driver of the monthly increase. Housing-related costs have been one of the stickiest components of inflation throughout this cycle, slow to reflect the real-world slowdown in rent growth that has been visible in private-market surveys for some time.
For the Fed, the July numbers are unlikely to change the calculus dramatically in either direction. Policymakers have said they want to see sustained evidence that inflation is returning to their 2% target before cutting interest rates. A 0.1% monthly gain is mild, but with the annual rate still at 3.4%, the job is not finished. Core inflation at 2.5% over the year is closer to target but still above it.
Markets tend to react sharply to CPI surprises in either direction. A reading that lands in line with expectations — as this one appears to — typically produces a more muted response. Investors will now turn their attention to upcoming jobs data and any signals from Fed officials about the likely path of interest rates in the months ahead.
The next key milestone for inflation watchers will be the Fed’s preferred gauge — the Personal Consumption Expenditures index — which often tells a somewhat different story than CPI.
