US Inflation Falls to 2.9% in July

The consumer price index increased by 0.2% for July. This places the 12-month inflation rate at 2.9%. That is the lowest level since March 2021.

.@POTUS & @VP are making progress fighting inflation, bringing it to lowest level since the tail end of the pandemic.

This is good news, but there is more to do—like lowering more everyday costs of living, cutting red tape, and taking on price gougers.https://t.co/sMvQuw0e0Q

— Rep. Salud Carbajal (@RepCarbajal) August 17, 2024

Excluding food and energy, core CPI recorded a 0.2% monthly rise. It saw a 3.2% annual increase. This met expectations.

This chart from Strategas shows why many Americans are unsatisfied w/their economy. Inflation for the avg American – Common Man CPI consists of Food, Energy, Shelter, Clothing, Utilities & Insurance – has risen faster than wages, resulting in a perceived loss of purchasing power. pic.twitter.com/b9s3tESpIW

— Holger Zschaepitz (@Schuldensuehner) August 17, 2024

A 0.4% increase in shelter costs was responsible for 90% of the all-items inflation increase. Food prices climbed 0.2%. Energy costs remained flat.

The CAUSE and EFFECT of ALL INFLATIONS:

1. INCREASE in the money supply
2. Inflation follows with a ~12-24 months lag
3. Higher bond YIELDS follow

MONEY = THE ECONOMY’S FUEL pic.twitter.com/dc2NGe1Sxe

— Steve Hanke (@steve_hanke) August 18, 2024

The Labor Department report suggests an interest rate cut in September remains a viable option. Economists had been looking for respective readings of 0.2% and 3%. The core CPI increase is the lowest since April 2021.

Headline inflation was 3% in June. Stock futures reacted mildly negatively after the report. Broader markets moved higher.

Despite soft food inflation in July, specific categories saw increases. Eggs saw a sizeable increase of 5.5%. Prices for cereals and bakery items declined by 0.5%.

Dairy and related products fell by 0.2%. Inflation metrics have gradually drifted back to the central bank’s 2% target.

July inflation update and economic perspectives

Another Labor Department report showed producer prices rose just 0.1% in July. They were up 2.2% year-over-year. This highlights the Federal Reserve’s potential easing stance.

They have been cautious not to commit to a specific timetable or pace for rate cuts. Futures market pricing points to a slightly better chance of a quarter percentage point reduction in September. It indicates at least a full point in cuts by the end of 2024.

“Today’s CPI print removes any lingering inflation obstacles that may have been preventing the Fed from starting the rate-cutting cycle in September,” said Seema Shah, chief global strategist at Principal Asset Management. “Yet, the number also suggests limited urgency for a 50 basis point cut.”

As inflation has eased, there are growing concerns about a slowing labor market. This potentially increases the likelihood of Fed rate cuts.

“Inflation is coming down, but the sticky areas continue to be sticky,” noted Liz Ann Sonders, chief investment strategist at Charles Schwab. “We have to keep a close eye on both the inflation data as well as the employment data.”

The report had several crosscurrents indicating persistent inflation in some sectors. Automotive prices continued to decline.

New vehicles were down 0.2%. Used cars and trucks were off 2.3% for the month and 10.9% from a year ago. Auto insurance costs climbed another 1.2%, up 18.6% over the past 12 months.

The shelter component makes up more than one-third of the index. It saw an increase in the rental equivalence measure by 0.4%, up 5.3% annually. This defies Fed expectations for easing housing-related costs.

Some categories showed signs of deflation for the month. These included medical care services (-0.3%), apparel (-0.4%), and core commodity prices (-0.3%).