U.S. inflation eases to 3.4% in July as gasoline and food prices dip
The Consumer Price Index showed annual inflation at 3.4% in July, helped by lower gasoline and grocery prices, while core inflation held at 2.5% and the labor market remained tight.
The Bureau of Labor Statistics reported that the U.S. consumer price index rose 0.1% in July, bringing the annual inflation rate down to 3.4% for the second consecutive month. The modest monthly increase matched economists’ forecasts and was driven largely by declines in gasoline, which fell 2.9%, and grocery prices, which slipped 0.1%.
Housing costs, measured in the shelter index that accounts for about one-third of the CPI basket, rose only 0.1% as hotel and motel rates eased. Food inflation fell to 2.7% on an annual basis, with some items such as lettuce posting a sharp monthly decline.
Core CPI, which excludes food and energy, rose 0.2% month-over-month, keeping the annual core rate at 2.5%, a level last seen in early 2024.
"The economy isn’t out of the woods from the threat that inflation poses for everyday Americans, but price pressures aren’t hot to the touch either," wrote Christopher Rupkey, chief economist at FwdBonds.
"There was a major effort by big-box discounters and grocery chains to roll back some of their prices. They said they would hold that this summer," said Diane Swonk, chief economist at KPMG.
"The longer you have an elevated price such as a tariff… it’s more and more handed over to the consumer," noted Andreas Hauskrecht, clinical professor of business economics at Indiana University.
Analysts cautioned that underlying pressures remain, especially in services such as medical care, air travel and auto repairs, and that higher energy costs could filter through the economy in the coming months.
Financial markets reacted modestly, with the Dow Jones Industrial Average up 0.1%, the S&P 500 gaining 0.3% and the Nasdaq rising 0.6%. Treasury yields slipped and the probability of a Federal Reserve rate hike in September fell to 38% according to CME FedWatch.
"We remain guarded on the near-term outlook for inflation amid volatile oil prices tied to the ongoing Middle East conflict along with lingering core price pressures from a strong economy and the AI boom," wrote Gary Schlossberg, global strategist at Wells Fargo Investment Institute.
The data may give the Federal Reserve some leeway to pause rate increases, though officials have reiterated their commitment to bring inflation down to the 2% target.