June inflation reports gave Wall Street something it hadn't seen in a while: negative month-over-month readings. These came as energy prices slumped on a ceasefire between the U.S. and Iran.
But that appears to be a one-off occurrence. According to the Bureau of Labor Statistics (BLS), the July Consumer Price Index (CPI), released Wednesday morning, showed headline inflation rose 0.1% month over month and was up 3.4% year over year.
Shelter accounted for nearly two-thirds of the monthly increase, while the indexes for both food (+0.1%) and food away from home (+0.3%) were up too.
Energy prices, which have had an outsize impact on CPI in recent months, fell 1.5% from June to July. Still, the index for energy was 14.7% higher year over year as gas prices surged nearly 25% over the past 12 months.
The data matched economists' estimate for a 0.1% monthly increase and a 3.4% annual rise, while the 12-month figure eased from June's 3.5%.
The data lifted expectations that the Federal Reserve will keep rates unchanged when it meets in September, especially following a weak July jobs report.
According to CME Group FedWatch, futures traders are pricing in a 64% chance the Fed will keep the federal funds rate at its current range of 3.50% to 3.75% next month, up from 52% yesterday.
What is the CPI?
"CPI is a measure of the average price of that basket of goods and services over time," writes Kiplinger contributor Coryanne Hicks. "The specific goods and services within the CPI basket are based on information that around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy."
The two primary measures of CPI are headline, which is the total inflation rate experienced by households, and core CPI, which excludes volatile food and energy prices.
Core CPI rose 0.2% from June to July and 2.5% over the last year. Economists expected core CPI to be up 0.3% month over month and 2.5% year over year.
With the July CPI report on the books, we looked at what economists, strategists and other experts on Wall Street are saying about what the data means for the Fed and the economy. You'll find these outlooks, edited at times for brevity, below.
Wall Street weighs in on the July CPI report
"For the Federal Reserve, this is a helpful report rather than an all-clear. Inflation is moving in the right direction despite the earlier energy shock, while recent weakness in the labor market gives policymakers even less reason to consider another rate increase in September. However, headline inflation at 3.4% remains comfortably above target and energy prices are still nearly 15% higher than a year ago, so the Fed is unlikely to declare victory yet, especially after Kevin Warsh was adamant to point out his focus on making sure that high inflation does not become detrimental to the U.S. economy." - Daniela Hathorn, Senior Market Analyst at Capital.com
"Typically, the market would be buoyed by the thought of rate cuts, but in a world where many are expecting rate hikes, anything that can delay — or squash the need for — rate hikes will be viewed positively. The market and the Fed won't stop worrying about inflation, and there are another set of reports before the next Fed meeting, but these two reports (Jobs and CPI) are going to go a long way toward keeping the bulls running in the near term." - Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management
"Today's July CPI report came in as expected. The bigger concern is what's happening beneath the headline numbers. The labor market has shown signs of weakening. At the same time, consumer credit numbers illustrate that consumers are feeling pressure. Recent data from the New York Fed showed revolving credit card balances continuing to rise, with total household debt reaching $1.26 trillion, up 1.7% from the previous quarter. Late-stage delinquencies have also risen to levels we haven’t seen since around 2008. For us, that provides a different and arguably more meaningful view of affordability than the CPI alone." - Kathleen Grace, CEO, CIO and Founder of Fiduciary Family Office
"As the economy reaches the end of the year, we should expect inflation to decelerate to 2.7% as transportation costs and healthcare costs ease. We expect the debate at the September FOMC meeting to be lively as the economy experiences a tight labor market while the inflation picture is quite blurry. Our baseline is that the Fed holds rates steady, but an increasing number of voting members are hawkish and could convince the majority to implement a hike. Overall risk sentiment is positive as inflation is expected to improve by the end of the year." - Jeffrey Roach, Chief Economist for LPL Financial
"While this morning's CPI report did not provide a flashy headline increase, it once again reinforces inflation's persistence above the Fed's target rate. While at first glance this reduces expectations for the Fed to hike rates at the September meeting, it also increases pressure on the new Fed chair Warsh to eventually deliver on his message that this pace of increasing consumer prices will not be tolerated. This dynamic may also further fuel the rise in long-dated Treasury yields, as the Fed seems comfortable to allow the bond market to enforce any tightening in the near term." - Jordan Rizzuto, Managing Partner and CIO at GammaRoad Capital Partners
"In our view, this month's CPI inflation reading, combined with a lackluster July jobs report, may keep hawkish Fed officials at bay in September. However, we remain guarded on the near-term outlook for inflation amid volatile oil prices tied to the ongoing Middle East conflict, along with lingering core price pressures from a strong economy and the AI boom." - Gary Schlossberg, Global Strategist at Wells Fargo Investment Institute (WFII)
"Today's data suggests the Fed has cover to remain on hold at its September meeting, particularly as policymakers will receive two critical data releases beforehand: the August employment report and August CPI print. These upcoming reports will provide a more complete picture of economic conditions and inflation momentum, giving the Fed flexibility to adopt a patient, data-dependent approach. Market participants should view today's report as constructive but not decisive, with the August data serving as the true determinant of September's policy decision." - Greg Gizzi, Chief Investment Officer of Fixed Income and Head of Municipal Bonds at Nomura Asset Management International
"The CPI report provided more of the same. A directionless indicator for the Fed. Some pressure was removed for a rate increase, which is probably no surprise to most of the Fed. Doing nothing to the rates is actually working. Making a call when the information is weak would give credence to political pressures more than economic ones. I think what the U.S. economy needs is time to heal and strengthen. I still believe the pressure to even drop rates in the next several months is not out of line." - Ben Fulton, CEO at WEBs ETFs
