US CPI Slows to 3.4%, Core Inflation Eases to 2.5%

The US Consumer Price Index (CPI) eased as expected in July, according to data released by Action Forex. The headline CPI rose from -0.4% to 0.1% month-over-month, while the annual rate slowed from 3.5% to 3.4%. Core CPI increased from 0.0% to 0.2% month-over-month, with an annual core inflation easing from 2.6% to 2.5%. This return to 2.5% matches pre-Iran-war readings from January and February after peaking at 2.9% in May.

The July report strengthens the argument for a hold-and-wait stance by the Federal Reserve, as weak payrolls have already raised hurdles for further tightening. Core inflation at 2.5% remains too high to justify easing. The renewed rise in oil also means that the benign energy contribution seen in July may be temporary, making August's CPI reading even more important.

Shelter rose just 0.1% month-over-month but accounted for roughly two-thirds of headline monthly increase. Energy prices fell by 1.5% month-over-month, although they were still up 14.7% year-over-year. Core increases were seen in medical care, airline fares, communication, education and recreation, while motor vehicle insurance declined.