Here are five key takeaways from the July CPI inflation report
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- Bureau of Labor Statistics reported July CPI rose 0.1% monthly and 3.4% annually, with core CPI at 0.2% monthly and 2.5% annually — two consecutive months of benign readings.
- Energy prices drove the June and July moderations, with the CPI energy index down 7% from its May peak; a 10% crude oil jump over the past week poses upside risks for the August reading.
- Shelter inflation showed progress, with the index rising just 0.1% over the past two months, though the gains came mostly from sharp drops in "lodging away from home" in three of the past four months while owners' equivalent rent held steady.
- Core inflation is now running at the same level as before the U.S. and Israel attack on Iran in late February, implying Middle East turmoil — not domestic dynamics — is the main barrier to the Fed's 2% target.
- CME FedWatch priced a September rate hike at just 38%, down 10 percentage points from Tuesday and well below the roughly 70% probability seen a month ago, with December now showing the highest odds.
- Bank of America is sticking with a contrarian call for 75 basis points of hikes this year starting in September, while TIAA Wealth Management's Neel Mukherjee said the report is unlikely to meaningfully shift many FOMC voters.
Why it matters: September Fed hike odds collapsed from roughly 70% to 38% in a month on benign July CPI, but the moderation rests on easing energy prices — already reversing with a 10% crude spike — and volatile lodging-away-from-home drops, while owners' equivalent rent stayed flat. With Bank of America still calling for 75 bps of hikes this year, the Fed's path is far from settled despite the reassuring headline.
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