Inflation on decline: Is a rate cut on the horizon?

The Consumer Price Index (CPI) increased by 0.2% in July, meeting expectations, following a slight decrease of 0.1% in June. This reduced the annual CPI rate to 2.9%, the lowest since March 2021. Excluding food and energy, the core CPI also increased by 0.2% monthly, with an annual rate of 3.2%, remaining within expectations and reaching its lowest level since April 2021.

Here’s the performance of the key components:

Performance of key components:

  • Energy: The energy index remained unchanged in July, following a 2.0% decrease in June. Gas gauge index also didn’t change during the month. On an annual basis, the energy index increased by 1.1%.
  • Food: This component increased by 0.2% in July, the same as in June.
  • The index for food at home increased by 0.1% in July (+1.1% annual). Three of the six major supermarket food indices increased, while the other three decreased.
  • For food away from home, there was a 0.2% rise in July (+4.1% annual), following a 0.4% increase in the previous two months.
  • On an annual basis, the entire food category advanced by 2.2%.
  • Shelter: This category increased by 0.4% in July, representing almost 90% of the monthly increase in the overall index.
  • Rents increased by 0.5% during the month.
  • The index for shelter away from home increased by 0.2% in July, after a 2.0% decline in June.
  • The entire shelter category recorded a 5.1% annual increase.

General Context:

This data, along with the recent drop in producer inflation to its lowest level in a year and a half, strengthens the possibility of a rate cut in September. Although pressures in the shelter sector persist, the consensus expects that at the September 17-18 meeting, there will be almost an equal chance of a reduction of either a quarter or half a percentage point.

Change (%) in the last twelve months of the CPI and Core CPI

Source: U.S. Bureau of Labor Statistics

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