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U.S. Inflation Eases With July CPI At 8.5%

By Timothy Fries Market OverviewAug 10, 2022 09:58AM ET
www.investing.com/analysis/us-inflation-eases-with-july-cpi-at-85-200628336
U.S. Inflation Eases With July CPI At 8.5%
By Timothy Fries   |  Aug 10, 2022 09:58AM ET
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The latest Consumer Price Index data, released today by the U.S. Bureau of Labor Statistics, showed that U.S. inflation stood at 8.5% in July, which compares to the consensus estimates of 8.7%. The drop comes following a series of aggressive interest rate hikes by the Federal Reserve in recent months and easing gas prices and supply-chain constraints.

What Does Today’s Data Mean For Markets?

Today’s CPI print showed that inflation eased in July year-over-year. Core CPI, which excludes volatile energy and food prices, came in at 5.9% year-over-year, while analysts were looking for a 6.1% increase.

The new CPI print comes after the annual inflation rate peaked at 9.1% in June, urging the U.S. central bank to hike key interest rates by another 75 basis points at the latest Federal Open Market Committee (FOMC) meeting last month. The Fed’s hawkish monetary policy and lower gasoline prices helped curb inflation rates in July (if the print is lower).

This release shows that inflation finally peaked after rising sharply for the past several months in the wake of the coronavirus pandemic and Russia’s invasion of Ukraine in February. Investors were nervously awaiting the last CPI release and now all eyes are on the Fed’s next move. The market is split on whether the Fed will hike by 50bps or 75bps and policymakers are likely to see today’s print as a piece of material evidence that inflation is easing.

Wall Street Braces for Another 75 BPS Hike in September

Inflation expectations were on a decline before the new CPI print. A recent survey by the New York Federal Reserve showed that consumers were estimating inflation rates to run at about 6.2% over the following year and a 3.2% annual rate for the next three years, marking a major drop in expectations from 6.8% and 3.6% in June survey.

Mark Zandi, head economist at Moody’s Analytics said:

“Everyone is primed for reasonably good news, so it’s got to be good news. If it’s not as good as people think, it’s going to be unusually bad news.”

But a number of investment banks think that somewhat slower inflation will not be a big enough reason for the Fed to slow the pace of its interest rate increases from the 75 bps hikes it has made at the previous two meetings. Another factor that increases the chances of another 75 bps hike is the last week’s unemployment report, which showed that the U.S. added 528,000 jobs in July, more than double what analysts expected.

U.S. Inflation Eases With July CPI At 8.5%
 

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U.S. Inflation Eases With July CPI At 8.5%

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Comments (2)
Kris Jay
Kris Jay Aug 10, 2022 1:21PM ET
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150bps and we got a .5% reduction in CPI.  8.5% is high inflation, not a "all clear" signal.  it is far from the 2% objective of the FED.  have no clue what retail traders are getting excited about.  more rate hikes ahead and earnings compression coming for Q3 and Q4.
Sachin Chavan
Sachin Chavan Aug 10, 2022 11:08AM ET
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thanks for explaining very well. but market looks like ok with these numbers.
 
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