Inflation pressures eased further in July, according to a highly anticipated report from the Bureau of Labor Statistics released Wednesday, giving policymakers at the Federal Reserve more room to hold interest rates steady when they meet next month.
The consumer price index rose a seasonally adjusted 0.1% during the month, while core CPI, which strips out volatile food and energy prices, increased 0.2%. On an annual basis, headline inflation stood at 3.4% and core at 2.5%. All four readings landed exactly in line with Dow Jones consensus forecasts.
Although those levels remain well above the Fed’s 2% target, the tame monthly prints — coming on the heels of similarly moderate increases in June — suggest that the energy-fueled spike that defined the early part of the year is gradually losing momentum. Still, officials are likely to remain cautious: energy prices remain volatile, and conditions in the Middle East could shift quickly.
Energy prices fell another 1.5% in July, following a 5.7% drop in June. Even so, the sector is up 14.7% from a year ago, reflecting the sharp run-up that began in March with a 10.9% surge just after the start of the attacks against Iran.
Food costs and shelter both rose 0.1% last month. Shelter has been one of the most stubborn contributors to above-target inflation, and even with the modest gain, it accounted for roughly two-thirds of the headline increase, according to the BLS.
Other categories showed mixed movement in July. New vehicle prices ticked up 0.1%, used cars and trucks climbed 0.4%, medical care rose 0.4%, and airline fares accelerated 2.2%.
Market reaction and rate expectations
Stock market futures moved higher following the release, while Treasury yields were negative across the board. Traders also trimmed the odds of a September rate hike to 42%, according to the CME Group’s FedWatch tool.
The Federal Open Market Committee, which sets interest rate policy, doesn’t meet again until September, giving officials another month of inflation data to digest before making any move. At its July meeting, the FOMC voted 9-3 to hold its benchmark rate steady, with all three dissenters favoring an increase.
That upcoming data could still change the narrative, said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
“In-line inflation will keep the ‘no need to hike rates’ narrative that took hold after last week’s jobs report intact,” Zentner said. “There will be another round of inflation data before the September FOMC meeting, so the storyline could still change. But unless those numbers tell a much different story, the Fed will likely still be in a position to leave rates unchanged next month.”
Labor market concerns shift the calculus
Until a week or so ago, markets had been pricing in a strong likelihood of a hike at the September meeting. But renewed worries about the labor market — after July’s net job loss — combined with the recent swings in energy prices have taken the immediacy out of an increase. Futures markets now reflect a greater chance of a move in either October or December.
Source: www.cnbc.com — https://www.cnbc.com/2026/08/12/cpi-inflation-report-july-2026.html
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