Annual Inflation Rate Slows to Lowest Level Since 2021 in July Inflation Report

Inflation rose as expected in July, primarily due to higher housing-related costs, according to a recent Labor Department report. This development might prompt the Federal Reserve to consider an interest rate cut in September.

The Consumer Price Index (CPI), a comprehensive measure of prices for goods and services, increased by 0.2% for the month. This brings the 12-month inflation rate to 2.9%, marking its lowest level since March 2021. Economists had anticipated these figures, with Dow Jones forecasting respective readings of 0.2% and 3%.

When excluding the volatile food and energy sectors, the core CPI also recorded a 0.2% monthly increase, maintaining a 3.2% annual rate. This annual rate is the lowest since April 2021, while headline inflation was 3% in June.

Shelter costs, which rose by 0.4%, were responsible for 90% of the overall inflation increase. Food prices saw a modest rise of 0.2%, whereas energy prices remained unchanged. Despite the soft overall food inflation, certain categories experienced significant changes. Notably, egg prices surged by 5.5%, while cereals and bakery items saw a decline of 0.5%, and dairy products fell by 0.2%.

Inflation readings have been gradually aligning with the central bank’s 2% target. A separate report from the Labor Department indicated that producer prices, a proxy for wholesale inflation, rose by just 0.1% in July and were up 2.2% year over year.

Federal Reserve officials have shown a willingness to ease monetary policy, although they have refrained from committing to a specific timeline or pace for potential rate cuts. Current market pricing suggests a slightly better chance of a quarter percentage point reduction at the Fed’s next scheduled meeting on September 17-18, with expectations for at least a full point in cuts by the end of 2024.