According to the Consumer Price Index (CPI), released by the Bureau of Labor Statistics (BLS), headline inflation eased slightly more than expected on a YoY basis in July to +2.9% from +3.0% in June (consensus: +3.0%), marking the smallest YoY increase since March 2021. MoM, CPI inflation came in as expected at the headline level, rising +0.2% in July, up from -0.1% in June.

Excluding energy and food price components, YoY came in as expected at +3.2% in July from +3.3% in June – this was the smallest increase in the core measure since April 2021; MoM reported as expected at +0.2% in July from +0.1% in June.

YoY Headline and Core CPI

Inflation Moving in the Right Direction

This shows price pressures are moving in the right direction, with fresh cycle lows in both the YoY headline and core prints. This also marks the fourth month we have seen YoY headline and core inflation slow.

Shelter prices doubled in July, rising +0.4% from +0.2% in June; the BLS added that the increase in shelter accounted for 90.0% of the monthly increase in the all-items index. Digging deeper, data noted that the energy index was unchanged in July, following two consecutive monthly declines (-2.0%), while food prices rose +0.2% in July, similar to June.

Limited Market Reaction

The market reaction was somewhat lacklustre; the US dollar (USD), according to the US Dollar Index, marginally rallied higher, marching alongside US Treasury yields. Equity index futures were mixed following the release, fluctuating between gains and losses, with spot gold (XAU/USD) echoing a similar vibe.

As per the Fed fund futures, markets are currently pricing 35 basis points of easing for the September meeting, with approximately 103 basis points of cuts for the year (this represents a minor change of less easing before the data release). While a 50 basis point rate cut in September is unlikely at this point, further softening in the jobs report (6 September) could nudge the US Federal Reserve in this direction. However, it will likely opt for a 25 basis point reduction.

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