US Consumer Inflation Eases in July as Energy Prices Temporarily Dip
Andy Hirschfeld
US consumer inflation eased in July as energy prices fell 1.5% month-over-month, though they remain 14.7% higher year-over-year. The CPI rose 0.1% for the month and 3.4% annually, while food prices gained 3% year-over-year.
US consumer inflation cooled in July thanks to a temporary dip in energy prices, amid market expectations that the Strait of Hormuz could resume shipping after months of disruption.
According to data released by the US Bureau of Labor Statistics (BLS) on Wednesday, the Consumer Price Index (CPI) rose just 0.1% from the previous month and 3.4% year-over-year. Energy prices fell 1.5% month-over-month but are still 14.7% higher than a year ago.
Gasoline prices have been a major driver of inflation recently. Brent crude fell 7% last week as hopes for reopening the Strait of Hormuz faded, but prices have rebounded this week. On Wednesday, Brent rose 0.3% to $89.19 per barrel. Retail gasoline prices dropped 2.9% from the previous month but remain 39.1% higher year-over-year.
According to the American Automobile Association (AAA), the national average gasoline price is now $4.03 per gallon (3.78 liters), compared to $4.00 on Monday, $4.08 last week, $3.87 last month, and $2.98 in late February when the US and Israel began airstrikes on Iran.
Food prices rose a modest 0.1% in July from the previous month and 3% year-over-year.
Rising Economic Pressures
The inflation data comes amid signs of a weakening US labor market. According to the BLS, the US economy lost 23,000 jobs in July, concentrated in retail, local government (especially education), and accommodation and food services, while healthcare saw job gains. A previous JOLTS report also showed little change in job switching, maintaining a labor market characterized by “few layoffs, few hires.”
These factors are putting pressure on the Federal Reserve (Fed) as it manages monetary policy to achieve its 2% inflation target. In July, the Fed held interest rates steady at 3.50-3.75%. Economists are divided on whether the Fed will raise or hold rates at its upcoming meeting on September 16, which will be the third under Chairman Kevin Warsh, who replaced Jerome Powell in May.
The CME FedWatch tool projects a 61.6% probability that the Fed holds rates steady, while 38.4% expect a hike to 3.75-4.00%.
Stock markets reacted positively, with the Nasdaq up 0.7%, the S&P 500 up 0.3%, and the Dow Jones up 0.05% in trading. Gold, considered a safe-haven investment during economic uncertainty, rose 1.4% to $4,428 per ounce.
Inflation pressures come ahead of the midterm elections, with only two more inflation reports due before the vote. According to a Reuters/Ipsos poll released last week, 37% of Americans believe the Democrats handle the economy better, while 36% prefer the Republicans.
