U.S. inflation cooled slightly in July as falling gasoline and grocery prices helped offset increases in housing, health care and airfare, offering consumers some relief while complicating the Federal Reserve’s next interest rate decision.
The Consumer Price Index rose 0.1% in July after falling 0.4% in June, according to data released by the Bureau of Labor Statistics. Over the past 12 months, consumer prices increased 3.4%, down from a 3.5% annual rate in June.
The July figures were largely in line with economists’ expectations and provided additional evidence that inflationary pressures have moderated. However, inflation remains above the Federal Reserve’s long-term goal of 2%.
Gasoline prices fell 2.9% during the month, helping pull overall energy costs lower. Consumers also saw declines in grocery prices, hotel rates and prescription drug costs. Shelter costs, which account for a large share of household spending, continued to rise.
Core inflation, which excludes volatile food and energy prices, rose 0.2% in July after remaining unchanged in June. Core prices were up 2.5% from a year earlier, compared with a 2.6% annual increase in June. Higher prices for health care, airline fares and some technology products contributed to the monthly increase.
The report arrives as Federal Reserve officials weigh persistent inflation against signs of weakness elsewhere in the economy. The central bank held its benchmark federal funds rate at a range of 3.5% to 3.75% at its July meeting and said inflation remained elevated relative to its goal.
Financial markets interpreted the latest inflation data as reducing the likelihood that policymakers will raise rates at their September meeting. Expectations for another increase have also been tempered by weaker labor market data.
Still, economists cautioned that July’s report does not necessarily signal that the inflation battle is over. Rising oil prices and continued instability in the Middle East could place renewed pressure on transportation, manufacturing and consumer costs in the coming months.
The Fed has repeatedly emphasized that it considers a range of economic data rather than any single monthly report when setting monetary policy.
For consumers, the July numbers offer a mixed picture. Inflation is moving in the right direction, but prices remain substantially higher than several years ago, and wage growth has struggled to keep pace. Inflation-adjusted wages were down 0.2% from a year earlier, according to Reuters.
The Federal Reserve’s next policy meeting could provide a clearer indication of whether officials believe inflation has cooled enough to keep interest rates steady or whether additional tightening will be necessary later this year.
