In July, US consumer prices rose by‘8,5% compared to a year ago, a slowing pace compared to the previous month (+ 9.1%) mainly due to the drop in gasoline prices. While on a monthly basis, prices remained unchanged as energy prices fell substantially by 4,6% and gasoline dropped by 7,7%. This offset a monthly increase in‘1,1% of food prices and an increase in 0,5% of housing costs.
Core inflation, net of food and energy prices, the so-called core CPI increased by 5,9% annual and 0,3% on a monthly basis, therefore below the respective estimates of 6,1% and of 0,5%.
“The inflation data for July will be more comforting for the Fed, particularly the lower-than-expected rise in core inflation. They were partly influenced by a notable drop in air fares, while inflation developments related to real estate and medical care are still worrying. Nonetheless, this was a big improvement over the June data and, if repeated in August, could reduce the pressure on the September FOMC meeting, ” writes Michael MetcalfeHead of Macro Strategy, State Street Global Markets in una nota.
Recall that even with numbers below expectations, these are inflation levels close to 40-year highs.
Markets react positively to declining inflation assuming the Fed will be less aggressive than expected in terms of rate policy. The Dow Jones gained 400 points at the opening at 22.193 points, while the Nasdaq Composite gained 2.5% at 13.333 points, the S&P 500 is also marking a 1.75% rise to 4.194 points. The dollar index (DXY) loses 1% to 105.18.
The jump in food prices led to the year-on-year increase 10,9%, the fastest pace since May 1979. Despite the monthly drop in the energy index, electricity prices have risen by some1,6% your message and of 15,2% compared to a year ago. The energy index increased by 32,9% compared to a year ago.
While the prices of used vehicles have recorded a monthly decline of 0,4%, clothing prices also fell, down by 0,1%and transport services decreased by 0.5% due to the fall in prices of airline fares decreased by1,8% for the month and 7.8% from a year ago.
The numbers indicate that inflationary pressures are easing slightly but still remain close to their highest levels since the early 1980s.
Clogged supply chains, disproportionate demand for goods versus services, and trillions of dollars of pandemic-related fiscal and monetary stimulus have all helped create an environment of high prices and slowing economic growth that has wreaked havoc on financial markets.
“It is important to remember that there is another employment figure and another inflation report ahead of the FOMC meeting on September 21st. Meanwhile, inflation remains far from the Fed’s target, the economy added more than 500,000 jobs last month, and third-quarter GDP is set to rebound based on consumption data. So the case for a third consecutive hike in the Federal Reserve’s principal rate of 75 basis points in September remains strong, ” comments James Knightley, Chief International Economist di ING.
The Federal Reserve has been aggressively raising interest rates year-to-date with the hope of returning inflation numbers to their long-term target of 2%. The central bank has so far raised policy rates by 2.25% in 2022, and several Fed members have provided indications that more hikes of at least 50 basis points are coming.
But there was also some good news earlier this week, as a New York Fed poll indicated that consumers have reduced inflation expectations for the coming quarters. But for now, the soaring cost of living remains a problem especially for the lower / middle income classes.