The US Consumer Price Index (CPI) ticked lower in July, as consumer inflation ticked lower to 3.4% on a year-to-year basis, down from 3.5% in June and matching the market estimate. This marks a back-to-back drop in inflation after hitting a three-year high of 4.2% in May. On a monthly basis, CPI posted a gain of 0.1%, compared to -0.4% in June and matching the market estimate.
It was a similar story for Core CPI, which excludes food and energy and is considered a better gauge of inflation trends. The core rate climbed 2.5% year-on-year, down slightly from 2.6% in June, and in line with the market estimate. This was its lowest level in five months. Core CPI rose to 0.2% on a month-to-month basis, above the 0% reading in June and matching the market estimate.
The small drop in July inflation was driven by lower gasoline prices, with a 2.9% in July.
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Lower Inflation Eases Pressure on Fed
Today’s inflation report was good news for the Federal Reserve, as lower inflation is needed before it can deliver a rate cut and provide the economy a boost. President Trump will continue to grumble that rates remain too high, but inflation remains well above the Fed’s 2% target, which means that rate cuts won’t be in the conversation at the next meeting in September. The probability of a hold in September stands at 56% and a rate hike at 44%, according to CME’s FedWatch. The stalemate in the Persian Gulf has pushed crude oil prices higher, and until some agreement is hammered out which frees up shipping in the Strait of Hormuz, energy prices will remain high and prevent US inflation from falling significantly.
US Dollar Posts Slight Losses, Stock Market Higher after Inflation Report
Today’s inflation report has had little effect on the US Dollar. The greenback is steady on Wednesday, showing slight losses against the major currencies.
The USD/JPY currency pair is showing the strongest movement among the majors, with gains of 0.36% and trading at 158.74, while GBP/USD is up 0.23%, trading at 1.3538.
The US stock market, which has just opened, has posted gains on Wednesday in the aftermath of the inflation report.
The tech-heavy Nasdaq 100 Index is showing strong gains, climbing 260.76 points (0.87%) and trading at 29,782.73.
The S&P 500 Index has posted moderate gains, rising 24.41 points (0.32%) and trading at 7752.61.
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