A closely watched report on US inflation showed that consumer price increases came in line with estimates during the month of July, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.
The Consumer Price Index (CPI) rose 0.2% over the previous month, an uptick from June’s 0.1% decline amid a pickup in energy prices. The monthly increase in prices was in line with economist expectations.
The index increased 2.9% over the prior year in July, which was a slight deceleration compared to June’s 3% annual gain in prices and also ahead of economist expectations of a 3% annual increase.
The break below 3% is the lowest annual reading since spring 2021.
On a “core” basis, which strips out the more volatile costs of food and gas, prices in July climbed 0.2% over the prior month and 3.2% over last year — matching economist expectations. Core prices rose 0.1% month over month and 3.3% on an annual basis in June.
Inflation has remained above the Federal Reserve’s 2% target on an annual basis. But recent economic data, including a sell-off-inducing July jobs report, has helped fuel a narrative the central bank should cut rates sooner rather than later.
Notably, the Fed’s preferred inflation gauge, the so-called core PCE price index, showed inflation in June was unchanged from the prior month and marked the slowest annual increase for core PCE in more than three years.
Immediately following Wednesday’s inflation data, markets were pricing in a nearly 100% chance the Federal Reserve cuts interest rates by the end of its September meeting. However, the odds of a 50 basis point cut or a 25 basis point cut are now split roughly 50/50 after a 70/30 chance placed by traders last week, per the CME FedWatch Tool.
“I think this report is a green light for the Federal Reserve in September,” Nathan Sheets, global chief economist for Citi, told Yahoo Finance’s The Morning Brief.
He noted it would still be a close call on whether the central bank would implement a 25 basis point or 50 basis point cut, adding that Thursday’s retail sales report for July would be a key data point to watch.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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