Latest CPI Report Offers Further Evidence Of Easing Inflation For Fed

The Federal Reserve was concerned that low inflation for June was a single datapoint, now July’s report offers similar evidence of disinflation. Monthly prices for the month of July rose 0.2% for both the headline and core inflation series, the same as for the month of June. Headline annual inflation rose slightly at 3.2% and core annual inflation showed some disinflation 4.7%. The Fed will still be concerned that annual 4.7% core inflation is well above their 2% goal, but it has now trended consistently lower since April. There will be another CPI release for the month of August before the Fed is scheduled to meet again in September, but the latest CPI report is broadly encouraging and at the margin, may cause the Fed to be less committed to another 2023 interest rate hike.

Housing

Housing is now the main driver of rising inflation because it carries a large weight in the series. Similar to the prior month shelter costs rose at a 0.4% monthly rate, but that is the same level as June and consistent with disinflation in housing costs.