Consumer prices rose just 0.1% in July, keeping the annual inflation rate at 3.4%, in line with Wall Street expectations.
The consumer price index, a broad measure tracked as part of the Federal Reserve’s inflation dashboard, showed the seasonally adjusted monthly increase, according to the Bureau of Labor Statistics.
Excluding food and energy, the so-called core CPI rose 0.2% for the month, with the annual core rate coming in at 2.5%.
Both headline and core readings were down 0.1 percentage point from June, and all figures matched the Dow Jones consensus forecasts precisely.
Though inflation remains above the Fed’s 2% target, the tame monthly readings suggest the energy-fuelled surge seen earlier in the year is beginning to ease.
Energy prices fell a further 1.5% in July, following a sharper 5.7% decrease in June, though the sector still recorded an annual increase of 14.7% after months of elevated gains.
Food and shelter costs each rose 0.1% in July, with shelter alone accounting for roughly two-thirds of the total headline increase, the BLS noted.
A 2.8% drop in lodging away from home costs helped contain the shelter index, while a key measure of rental prices asked of property owners increased 0.3%.
New vehicle prices edged up 0.1%, used cars and trucks climbed 0.4%, medical care rose 0.4%, and airline fares jumped 2.2% during the month.
Stock market futures moved higher after the release, while Treasury yields fell across the board as traders reassessed the likelihood of a near-term rate increase.
The probability of a September rate hike was cut to 42%, according to the CME Group’s FedWatch gauge of futures prices, a notable shift from expectations just days earlier.
“In-line inflation will keep the ‘no need to hike rates’ narrative that took hold after last week’s jobs report intact,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
“There will be another round of inflation data before the September FOMC meeting, so the storyline could still change,” Zentner added, “but unless those numbers tell a much different story, the Fed will likely still be in a position to leave rates unchanged next month.”
A net job loss reported in July, combined with ongoing volatility in the energy sector linked to conditions in the Middle East, has further dampened the urgency for an imminent rate increase.
At its July meeting, the Federal Open Market Committee voted 9-3 to hold its key interest rate steady, with all three dissenters favouring a hike, and markets are now pricing a greater chance of a move in October or December.