Consumer prices rose a modest 2.9% in the 12 months through July, the Labor Department reported Wednesday in its consumer price index, an annual rate that suggests the historic inflation surge of 2022 continues to ease.
The annual inflation rate hadn't dipped below 3% since March 2021. Inflation has gently declined this summer, following a brief spike in spring.
On a monthly basis, prices rose 0.2%. Food prices were up 2.2% on the year. Energy prices were up 1.1%, and gasoline prices were down. Much larger price gains came in transportation services (8.8%) and shelter (5.1%).
The increase in shelter prices accounted "for nearly 90 percent of the monthly increase" in overall inflation, the Labor Department reported. Transportation and shelter prices pushed up “core” inflation, a closely watched measure that excludes volatile food and energy categories. That metric rose 3.2% on the year.
Stocks opened mixed in response to the inflation news. The Dow Jones Industrial Average was up roughly 0.2% in morning trading. The S&P 500 was down 0.15%. The Nasdaq composite was down 0.6%.
The Federal Reserve has set an inflation target of 2%, based on a more esoteric economic index of personal consumption expenditures. That goal has yet to be met. But the numbers seem to be headed in the right direction.
"The July Consumer Price Index appears to represent the further progress the Federal Reserve wants to see on the road to its 2% inflation target," said Mark Hamrick, senior economic analyst at Bankrate, in a statement.
Rising rent and lodging prices remain "a thorn in the Federal Reserve’s side" in its battle against inflation, wrote Ryan Sweet, chief U.S. Economist at Oxford Economics.
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When will the Fed cut interest rates?
Already, easing inflation has prompted the Federal Reserve to signal it may cut interest rates as soon as mid-September, a move hotly anticipated by the investment world.
The Fed’s benchmark interest rate has stood at a 23-year high, above 5%, since July 2023, as the panel waits for inflation to abate.
Thus, in recent months, consumers have endured a double whammy of high inflation and elevated interest rates, making homes, cars and other consumer goods less affordable.
The Fed has faced mounting pressure to cut rates, with some voices blaming the panel for recent stock market turbulence. Forecasters widely predict the first rate cut will come in September.
“We still expect the Federal Reserve to cut interest rates by up to a half a percentage point at their September 17-18 meeting,” wrote Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, in a note ahead of the inflation announcement.