Moderate increase seen in US consumer prices for July, weekly jobless claims exceed predictions

Consumer prices in the U.S. experienced a moderate uptick during July, attributed in part to reduced expenses for items such as pre-owned automobiles. This prevailing pattern might influence the Federal Reserve’s consideration to maintain the current interest rates in the upcoming month.

The the Labor Department said on Thursday that the CPI rose 0.2% last month, matching the gain in June. Though the increase in the annual CPI rate picked up for the first time in 13 months, that was because it was calculated from a lower base after prices subsided last July following a jump that had boosted inflation to a pace not seen in more than 40 years.

The CPI advanced 3.2% in the 12 months through July. That followed a 3.0% rise in June, which was the smallest year-on-year gain since March 2021. Annual consumer prices have come down from a peak of 9.1% in June 2022. The Fed has a 2% inflation target.

Earlier, economists polled by Reuters had forecast the CPI would rise 0.2% last month and by 3.3% on a year-on-year basis.

According to Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina, the overall trend in inflation is more firmly on a downward path than at the start of the year. “While headline inflation has made quick work of getting back to low single digits, the year-over-year pace is likely to get stuck around 3% through the end of the year. This would keep a sustained return to the Fed’s target in the distance,” Reuters quoted Bullard as saying.

The CPI report on Thursday is one of two reports preceding the U.S. central bank’s policy meeting scheduled for September 19-20. Market consensus suggests that the Federal Reserve is likely to maintain its current policy rate during this meeting, as indicated by CME Group’s FedWatch tool. Since March 2022, the Fed has implemented a series of increases in its benchmark overnight interest rate, totaling 525 basis points, resulting in the present range of 5.25%-5.50%.

Excluding the volatile categories of food and energy, the CPI exhibited a 0.2% increase in July, mirroring the rise observed in June. Over the twelve months leading up to July, the core CPI demonstrated a rise of 4.7%, following a 4.8% increase in June.

The upward trajectory of core inflation was mitigated by a consecutive two-month decline in the prices of used cars and trucks. While rental costs continued to ascend last month, the pace of increase has decelerated since January, and further moderation is anticipated for the latter part of 2023 and through 2024.

Independent assessments indicate a downward trend in rental costs due to an influx of new apartment buildings in the market. Measurements of rent within the CPI typically lag behind these independent indicators by several months.

Another indicator of an entrenched disinflationary trend is a recent survey by the National Federation of Independent Business. The survey revealed that the proportion of small businesses identifying inflation as their primary concern dropped in July to its lowest level since November 2021. Likewise, the percentage of businesses raising prices reached a 2.5-year low.

The cooling labor market is also anticipated to contribute to inflation moderation. Government data released last week indicated the addition of 187,000 jobs in July, marking the second-lowest count since December 2020. Nevertheless, labor market conditions remain tight, with unemployment rates at levels not seen in over 50 years, thereby sustaining elevated wage gains. With the rise in worker productivity, economists hold an optimistic outlook on containing labor costs.

In a separate report from the Labor Department released on Thursday, initial claims for state unemployment benefits rose by 21,000 to reach a seasonally adjusted 248,000 for the week ending August 5. Economists had predicted 230,000 claims for the corresponding period. The number of individuals receiving benefits after the initial week of aid, which serves as a proxy for hiring, decreased by 8,000 to 1.684 million during the week ending July 29, as per the claims report. These ongoing claims, often referred to as continuing claims, remain at historically low levels, suggesting that some laid-off workers experience only short periods of unemployment.