Core US Inflation Eases a Fourth Month, Sealing Fed Rate Cut

Underlying US inflation eased for a fourth month on an annual basis in July, keeping the Federal Reserve on track to lower interest rates next month. The so-called core consumer price index — which excludes food and energy costs — increased 3.2% in July from a year ago, still the slowest pace since early 2021. The monthly measure rose 0.2%, a slight pickup from June’s surprisingly low reading, Bureau of Labor Statistics (BLS) figures showed Wednesday.
Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure also climbed 0.2% from the prior month and 2.9% from a year ago. BLS said nearly 90% of the monthly advance was due to shelter, which accelerated from June. Inflation is still broadly on a downward trend as the economy slowly shifts into a lower gear. Combined with a softening job market, the Fed is widely expected to start lowering interest rates next month, while the size of the cut will likely be determined by more incoming data.
Before their September meeting, officials will get more inflation readings plus another jobs report — which will be heavily scrutinized after the disappointing July figures helped spark a global market selloff and fanned recession fears. Fed Chair Jerome Powell and his colleagues have recently said they’re focusing more on the labor side of their dual mandate, which they’re likely to stress at their annual symposium in Jackson Hole, Wyoming next week.
Excluding housing and energy, service prices were up 0.2%, the first increase in three months, but still at a tame pace, according to Bloomberg calculations. While central bankers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.
That measure, known as the personal consumption expenditures price index, doesn’t put as much weight on shelter as the CPI does — and that’s part of the reason why the PCE gauge is trending closer to the Fed’s 2% target. The PCE measure, released later this month, draws from the CPI as well as certain categories within the producer price index. Those parts of the PPI were fairly tame in July, and the headline figures rose by less than forecast, according to government data out Tuesday.

(Source: Bloomberg)