Tag: CPI Report

July CPI Report Keeps Fed in Tight Spot as Rate-Cut Debate Heats Up

Posted on by slightbourne@noblecapitalmarkets.com

A fresh reading on inflation in July has left the Federal Reserve facing a difficult policy choice: act quickly to support a cooling labor market or hold steady to ensure inflation returns to target. Core Consumer Price Index (CPI), which strips out food and energy, rose 3.1% year over year in July — above economists’ 3.0% forecast and up from 2.9% in June. On a monthly basis, core CPI increased 0.3%, matching expectations. Headline CPI rose 2.7% year over year, a touch below the 2.8% consensus.

The mixed picture — a slightly softer headline print but hotter core inflation — complicates the Fed’s September decision. Markets, however, have already swung toward loosening: futures traders are pricing in roughly a 92% chance of a 25-basis-point cut in September. That reflects growing concern about recent labor-market weakness and the potential political impetus for easing.

Employment data released earlier this month deepened that concern. The U.S. added only 73,000 jobs in July, the unemployment rate edged up to 4.2%, and May and June payrolls were revised sharply lower by a combined 258,000. The three-month average for job growth is now about 35,000 — a pace many economists view as consistent with a significant cooling in hiring. Those revisions have amplified calls from some quarters of the Fed to move sooner on rate cuts to cushion the labor market.

At the same time, services inflation, the historically stickier component of the CPI, moved higher in July after moderating earlier in the year. Certain goods categories such as furniture and footwear also showed renewed upward pressure. Because core CPI and core PCE (the Fed’s preferred gauge) tend to move together, the stronger core CPI reading raises the risk that core PCE will also show another above-target reading in coming reports, analysts say.

Policy makers at the Fed remain divided. Several regional presidents and officials have emphasized caution, arguing that elevated inflation — still more than a full percentage point above the Fed’s 2% goal on a core basis — counsels patience. Others have pointed to the softening employment trend as a compelling reason to begin easing policy soon. That split was evident in recent public remarks from Fed officials, who ranged from urging a patient approach to signaling readiness to cut if labor-market deterioration continues.

The White House has also weighed in, increasing political pressure on the Fed to move. That intervention adds another dimension to an already fraught decision, though policymakers stress their commitment to independence and data-driven decisions.

Looking ahead, the Fed will watch August inflation components closely along with incoming employment and consumer spending data. If services inflation continues to run hot, the case for holding rates rises; if job growth further weakens and labor-market indicators soften, arguments for a September cut will strengthen.

For now, the July CPI leaves the Fed between two difficult paths: risk undermining the inflation fight by cutting too soon, or risk further labor-market deterioration by waiting. The choice in September will hinge on the next tranche of inflation and jobs data — and on how policymakers weigh those competing risks.

Inflation Ticks Up in June as Tariffs and Essentials Drive Prices Higher

Posted on by slightbourne@noblecapitalmarkets.com

U.S. consumers felt a noticeable pinch in June as inflation climbed to 2.7% annually, up from 2.4% in May. With global trade tensions escalating and new tariffs on imports taking effect, everyday essentials like food, healthcare, and shelter are becoming more expensive—leaving many Americans bracing for what’s next.

The latest Consumer Price Index (CPI) report, released Tuesday, signals that inflationary pressures remain persistent despite previous signs of cooling. While prices for airfare and automobiles—both new and used—eased slightly, other critical categories saw continued increases.

One key concern behind June’s uptick: the return of global trade tariffs. Analysts point to rising prices in categories that are closely tied to international trade, such as furniture, appliances, and clothing. Household furnishings, for example, jumped 1% in June—the sharpest increase since early 2022—suggesting that tariffs are starting to filter through to consumer prices.

Recreation and apparel costs also edged higher, adding to speculation that the economic fallout from tariffs may only be getting started.

Food inflation continues to strain household budgets. Grocery prices rose another 0.3% in June, matching May’s increase and marking a 2.4% year-over-year rise. Meat prices, particularly beef, have remained stubbornly high. Ground beef now averages $6.10 per pound—nearly 10% more than this time last year. Steak prices soared even higher, with a 12.4% annual jump.

While egg prices have finally begun to fall—dropping 7.4% from May—their average price of $3.78 per dozen remains significantly higher than the $2.72 average just a year ago. Eating out also became more expensive, with restaurant prices climbing 0.4% in June and up 3.8% year-over-year.

Healthcare costs continue to rise at a steady pace. Medical services were up 0.6% from May and 3.4% from a year ago. Hospital services and nursing home care saw even larger increases, at 4.2% and 5.1% respectively. Health insurance premiums also edged higher, up 3.4% from last year.

Shelter costs—typically the largest portion of household expenses—rose another 0.2% last month and are now 3.8% higher than June 2024. However, increased apartment construction and cooling home prices may offer a slight reprieve in coming months.

There was at least one bright spot for consumers: gasoline. Prices at the pump rose 1% in June but remain 8.3% lower than a year ago. AAA reports a national average of $3.15 per gallon, down from $3.52 last summer.

Used car prices dipped 0.7% monthly, and new vehicle prices fell 0.3%—further signaling stabilization after pandemic-era surges.

With inflation still above the Federal Reserve’s 2% target, economists expect the central bank to keep interest rates unchanged at its July meeting. The hotter-than-expected June data may also delay hopes for a rate cut in September.

For now, households are being forced to navigate a landscape where necessities cost more and relief remains limited—especially if tariffs continue to ripple through the economy.