Inflation slowed in July with consumer prices rising 2.9% compared to a year earlier, marking the first time the 12-month Consumer Price Index increase has been under 3% since March 2021, according to the U.S. Bureau of Labor Statistics on Wednesday.
This milestone increases the likelihood that the Federal Reserve Board will proceed next month with an anticipated interest rate cut. The Fed has maintained interest rates at their highest level in over two decades to decelerate economic activity and curb inflation.
On a monthly basis, prices increased by 0.2% in July after declining by 0.1% in June. Persistently high housing costs (+0.4%) accounted for 90% of the monthly all-items increase in July, as reported by the BLS. The energy index remained unchanged over the month following declines in both June and May. The food index also increased by 0.2% in July, consistent with its rise in June.
The core index, which excludes more volatile food and energy prices, rose by 0.2% for July after increasing by 0.1% in June. This core index reflected higher costs for shelter, motor vehicle insurance, furnishings, education, recreation, and personal care services. Conversely, indexes for used cars and trucks, medical care services, airline fares, and apparel saw decreases over the month.
Annually, the core index (excluding food and energy) rose by 3.2%. The shelter index increased by 5.1% over the past year, contributing to over 70% of the total annual increase in the all-items less food and energy index.
Other notable annual increases included motor vehicle insurance (+18.6%), motor vehicle maintenance and repair (+4.6%), medical care (+3.3%), personal care (+3.4%), and recreation (+1.4%). Decreases were observed in used car and truck prices (-10.9%), airline fares (-2.8%), and gasoline (-2%).
The stock market opened higher on Wednesday as investors responded positively to the encouraging July inflation data.
