There are two reports on the U.S. economy worth mentioning this morning. First, data from the Bureau of Labor Statistics (BLS) showed that household inflation pressures remained muted in July, as the consumer price index (CPI) for all urban consumers rose by just 0.1 percent. That was the 5th monthly reading in a row that was softer than economists had expected, and year-over-year growth held near the slowest pace since the election. “Core” CPI, which excludes the volatile food and energy components, also lifted by just 0.1 percent in July, with weakness in the lodging away from home and vehicles categories offsetting a lot of the gains in apparel, medical care, and transportation services prices.
In fact, 67 of the 114 components in core CPI have decelerated since the index peaked in January, highlighting a fairly broad-based U.S. inflation slowdown. Similarly, today’s CPI report agreed with the latest reading on the producer price index for final demand (PPI-FD), i.e. the BLS’s gauge of wholesale inflation pressures in America. Specifically, the PPI-FD fell by 0.1 percent in July, much worse than the 0.1 percent gain economists expected, the first monthly decline in almost a year, and enough to pull the annual pace of headline growth back below the Federal Reserve’s 2.0 percent “target.” Core PPI-FD was also weak last month, with notable price declines seen at chemical wholesalers, equipment wholesalers, apparel retailers, and airline-related services. Altogether, the latest inflation data will help Fed policymakers justify a more gradual rise in the federal funds rate.
Sources: Econoday, Bloomberg, U.S. DoL, FRBSLPost author: Charles Couch