Consumer prices rose 0.1% in July, as expected, putting the annual rate at 3.4%
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- July CPI rose 0.1% monthly and 3.4% annually, while core CPI rose 0.2% monthly and 2.5% annually — both annual figures down 0.1 percentage points from June and in line with Dow Jones consensus forecasts.
- Energy prices dropped 1.5% in July following a 5.7% decline in June, though the sector still posted a 14.7% annual increase fueled by sharp gains earlier in the year after attacks against Iran began.
- Shelter costs rose 0.1% in July but accounted for about two-thirds of the headline increase; lodging away from home dropped sharply by 2.8%, while a measure asking property owners about potential rent increased 0.3%.
- Traders cut the probability of a September rate hike to 42% on the CME Group's FedWatch gauge, down from a 'strong likelihood' priced in just a week earlier.
- The FOMC voted 9-3 at its July meeting to hold rates steady, with all three dissenters favoring a hike; markets now price a stronger chance for a move in October or December.
- Morgan Stanley's Ellen Zentner said in-line inflation keeps the 'no need to hike rates' narrative intact following last week's jobs report, but warned the August data could still shift the picture before the September meeting.
- Airline fares accelerated by 2.2% in July, while new vehicle prices rose 0.1%, used cars and trucks 0.4%, and medical care 0.4%.
Why it matters: With September hike odds at just 42% and the FOMC split 9-3 with all dissenters wanting a hike, the Federal Reserve has room to wait for one more inflation reading before deciding. Shelter costs still drove two-thirds of the headline increase, keeping core inflation stuck at 2.5% — well above the Fed's 2% target and the structural pressure point for any eventual policy shift.
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