United States consumer prices rose modestly in July, with inflation readings coming in line with expectations and reducing pressure on the Federal Reserve to raise interest rates at its September meeting.
The consumer price index (CPI), a broad measure of goods and services costs, increased 0.1% on a seasonally adjusted basis during July, according to the Bureau of Labor Statistics (BLS). The annual inflation rate was 3.4%.
Excluding food and energy, core CPI rose 0.2% for the month and 2.5% annually. All readings were in line with Wall Street forecasts, with both annual measures easing 0.1 percentage point from June.
Although inflation remains above the Fed’s 2% target, moderate monthly readings in June and July suggest the energy-driven surge earlier in the year is easing. Prices remain volatile, however, amid changing conditions in the Middle East.
Energy prices fell 1.5% in July following a 5.7% decline in June, although the sector remained 14.7% higher annually after sharp gains in previous months, including a 10.9% increase in March following the attacks against Iran.
Food and shelter prices each rose 0.1% in July. Shelter accounted for about two-thirds of the monthly increase in the headline CPI, according to the BLS, despite the modest rise.
Lodging away from home costs fell 2.8%, while the measure tracking rents that property owners could receive increased 0.3%.
New vehicle prices rose 0.1%, while used cars and trucks increased 0.4%. Medical care costs climbed 0.4% and airline fares rose 2.2%.
The Federal Open Market Committee will not meet again until September, giving policymakers another month of inflation data before deciding on interest rates.
Markets had been pricing a strong likelihood of a September rate hike until recently. However, renewed labour market concerns following a net job loss in July, combined with volatility in energy prices, have reduced expectations for an immediate increase.
At its July meeting, the FOMC voted 9-3 to keep its key interest rate unchanged, with all three dissenters supporting a rate hike. Markets are now pricing a greater chance of a move in October or December.
