The core consumer price index came in a bit hotter than expected in July, but Trump tariffs weren't the primary culprit, as some services prices picked up steam. The S&P 500 turned higher after the CPI data as markets priced in higher odds of near-term Federal Reserve rate cuts.
The headline inflation rate actually undershot forecasts, held down by soft energy and food prices that are excluded from the core CPI. Intel is among the S&P 500 leaders on Tuesday after CEO Lip-Bu Tan got a vote of confidence from President Trump.
10:07 a.m. ET
Trump Tariffs Impact Eases In July
As expected, the impact of Trump tariffs was more mild in July. Core goods prices, excluding autos, rose 0.2% in July, after jumping 0.5% in June, which was the biggest increase in two years, noted Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
Tombs still expects inflation to head higher, but he thinks the Fed "will be reassured, bit by bit, that the tariffs are materially lifting only goods prices," paving the way for rate cuts to stabilize the labor market.
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9:48 a.m. ET
S&P 500 Climbs, 10-Year Yield Rises
The S&P 500 rose 0.3% in Tuesday morning stock market action. The S&P 500 lost 0.25% on Monday, finished 0.8% below its July 28 record closing high.
The 10-year Treasury yield climbed three basis points to 4.3%, probably based on expectations that Fed rate cuts will shore up economic growth.
Through Monday, the S&P 500 has climbed 7.8% for the year and 9.6% since Election Day.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
9:27 a.m. ET
Will Trust In BLS Data Suffer?
On Monday, President Trump nominated E.J. Antoni, chief economist of the conservative Heritage Foundation, to be the next commissioner of the Bureau of Labor Statistics. Antoni had called for the removal of former BLS commissioner Erika McEntarfer on Steve Bannon's podcast following the Aug. 1 jobs report that saw major downward revisions to payroll gains for May and June, according to a Wall Street Journal report. Trump fired her hours later.
In a social media post last week, Antoni wrote, "There are better ways to collect, process, and disseminate data." However, Antoni's partisanship and data-collection expertise have drawn criticism — not just from the left. The nomination requires Senate approval.
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9:02 a.m. ET
Wall Street Reaction To CPI
"The Fed's policy stance is highly data-dependent, and with inflation contained and labor market softness increasingly evident in revised payroll data, the emphasis will now be skewed toward employment," wrote Alexandra Wilson-Elizondo, global co-chief investment officer of multi-asset solutions at Goldman Sachs Asset Management. That supports "an insurance rate cut in September."
Seema Shah, chief global strategist at Principal Asset Management, wrote that evidence of tariff pass-through to consumers "is not significant enough to ring alarm bells." However, she adds that tariff inflation concerns are "likely to grow over the coming months, meaning that inflationary pressures are likely to pick up just as the Fed starts to resume rate cuts."
8:52 a.m. ET
Fed Rate-Cut Outlook
After the CPI inflation report, odds of a Sept. 17 Fed rate cut climbed to 90% from 82%. Now markets are tilting slightly toward 75 basis points in rate cuts in the final three Fed meetings of 2025, with odds up to 52% from 42% ahead of the data.
8:50 a.m. ET
Some Impact From Trump Tariffs
Motor vehicle parts and equipment prices rose 0.9% on the month and 2.9% from a year ago, which was the most in a year. Motor vehicle maintenance and repair prices rose 6.5% from a year ago, the most since May 2024.
8:47 a.m. ET
Medical Service Prices Jump
Medical care services prices rose 0.8%, the most since September 2022. That came as dental services prices jumped 2.6%, the biggest monthly increase on record. Hospital prices rose 0.5%.
8:40 a.m. ET
Services Inflation Warms Up, Goods Inflation Tame
The July CPI data saw core inflation overshoot, but not because of tariffs. The surprise appeared to be from a pickup in services inflation as airfares rose 4%, the most in two years.
In goods categories, prices of major appliances fell 2.2%. Apparel prices inched up 0.1%. New vehicle prices were flat, while used cars and trucks rose 0.5%.
8:38 a.m. ET
S&P 500 Futures Rise
S&P 500 futures rose 0.5% following the CPI report, despite the core inflation reading picking up more than expected. The 10-year Treasury yield edged up to 4.28% vs. 4.27% on Monday.
8:36 a.m. ET
Small Business Optimism Improves
The NFIB Small Business Optimism Index, released at 6 a.m. ET, rose 1.7 points in July to 100.3. Economists had expected a slim rise to 98.9. The survey showed small business owners more upbeat about the health of their business and the future. Just 11% said inflation was their biggest problem, unchanged from June's lowest reading since September 2021.
8:33 a.m. ET
CPI Inflation Data
The overall CPI rose 0.2% in July, in line with 0.2% forecasts. The 12-month headline inflation rate held at 2.7%, which was below 2.8% forecasts.
The core CPI, which excludes volatile food and energy prices, rose 0.3%, matching forecasts. However, the 12-month core inflation rate rose to 3.1%, above 3% estimates.
Modest Impact From Trump Tariffs So Far
A surge in imports before Trump tariffs took effect delayed the need for retailers to hike prices. While price hikes showed up in the June data, with a 1.8% monthly rise in prices for sports equipment and 1.8% bump in toy prices, services inflation has been pretty tame.
Hotel and motel room rates fell 3.7% from a year ago in June, while airline fares have slipped 0.7% over the past 12 months.
Pantheon Macroeconomics noted that Adobe's Digital Price Index data points to "a slowing pass-through from the tariffs to consumer prices" in July, though the economists aren't fully buying it.
Used car prices are something of a wild card, after falling 0.7% in June. Both Manheim and JD Power data suggest higher used car prices in July data.
