July CPI Report Key Stats: • Headline CPI rose 0.2% for the month after declining by -0.1% in June.
• Headline CPI rose 2.9% year-over-year after increasing by 3.0% in June.
• Core CPI rose 0.2% for the month after increasing 0.1% in June.
• Core CPI rose 3.2% year-over-year after increasing by 3.3% in June. TheConsumer Price Index (CPI), a broad measure of the change in prices paid by consumers for a market basket of goods and services showed inflation drifted higher in July, driven by increased shelter costs. The headline year-over-year rate came in at 2.9%, less than the 3.0% expected and the lowest level in more than three years (March 2021). Headline inflation rose by 0.2% for the month, meeting expectations. Excluding food and energy categories, the core index came in at a 0.2% monthly rise and a 3.2% annual rate, both meeting expectations. The annual core reading was the lowest level since April 2021. Headline pricing moves were primarily driven by sticky housing costs. Shelter, which composes more than 70% of the CPI weighting, rose by 0.4% in the month and accounted for 90% of the all-items inflation increase. Food inflation was mild, increasing by 0.2%, in line with June’s rise. ‘Food at home’ increased by 0.1%, largely driven by a 5.5% spike in egg prices. The index for meats and eggs rose by 0.7%, the fruit and vegetables index rose by 0.8%, cereal and bakery products declined by 0.5%, and dairy and related products declined by 0.2%. ‘Food away from home’ increased 0.2% in July, after rising 0.4% in the last two preceding months. Energy was unchanged, after decreasing 2.0% percent in June. Overall, recent inflation readings have been gradually drifting back to the central bank’s long-term 2% target; however, certain categories remain sticky (i.e. shelter). In the prior trading day (Tuesday), the Labor Department released theProducer Price Index (PPI)report, a proxy for wholesale inflation, which showed inflation rose just 0.1% in July and 2.2% year-over-year, less than expected. The recent CPI and PPI readings should remove any lingering inflation barriers that may have previously prevented the Fed from starting to cut rates thus far. The broad expectation is for the Fed to cut rates by 25bps in next month’s meeting, while the immediate need for a 50bps cut seems to be largely off the table as sentiment has improved. We continue to keep a close eye on developing inflation and employment data, which may change monetary policy expectations.
Changes in Prices - Consumer Price Index (CPI) Another advancement in the prior week showed consumer spending accelerated more than expected in July, as inflation eased slightly (aside from shelter).Advanced retail salesincreased 1.0% on the month and rose 2.7% from a year ago (adjusted for seasonality but not inflation). Expectations called for a 0.3% increase. June’s sales figure was also revised higher to show a 0.2% increase after initially being reported as flat. The core figure, which excludes auto-related items, increased 0.4%, better than the 0.1% forecasted. Sales climbed across the board, including motor vehicles and part dealers (3.6%), electronics and appliance stores (1.6%), and food and beverage outlets (0.9%). Offset by a drop in sales at miscellaneous stores (-2.5%) and clothing stores (-0.1%). The report showed the consumer continues to surprise to the upside on a macro basis. Additional positive news came with the release of unemployment claims which came in less than expected.Initial jobless claimsrose 227k for the week, below the 236k forecasted and less than the 234k reported in the prior week. | 
