US CPI Holds Steady as Energy Prices Decline

Headline Inflation Misses by a Tenth

US consumer prices rose 0.2% in July, with the annual rate holding at 2.7%, the Bureau of Labor Statistics reported. Both readings were just under Dow Jones estimates of 0.2% monthly and 2.8% year-on-year. Core CPI, excluding food and energy, increased 0.3% for the month and 3.1% annually, marginally above the 3.0% annual forecast.

Shelter and Services Keep Core Inflation Firm

Shelter costs were the largest contributor to monthly gains, rising 0.2%, with both rent and owners’ equivalent rent up 0.3%. Medical care services advanced 0.8%, driven by higher dental and hospital service costs. Airline fares rebounded sharply, up 4.0% after a June drop. Other service categories such as recreation and household furnishings also posted solid increases, underscoring persistent service-sector inflation pressures.

Energy Prices Pull Back Sharply

Energy prices fell 1.1% in July, providing relief to headline inflation. Gasoline prices dropped 2.2%, extending their 9.5% annual decline. Natural gas fell 0.9%, while electricity edged down 0.1% on the month but remains 5.5% higher year-on-year. Energy weakness offset firmness in other CPI components.

Food Prices Flat as Grocery Costs Dip

Overall food prices were unchanged in July. Food at home declined 0.1%, led by sharp drops in eggs (-3.9%) and nonalcoholic beverages (-0.5%). These declines outweighed a 1.5% rise in beef prices. Food away from home advanced 0.3%, with full-service meals up 0.5%.

Market Outlook: Data Slightly Eases Fed Pressure

The softer-than-expected headline print, alongside cooling energy costs, may ease some pressure on the Federal Reserve to maintain a hawkish stance, especially with tariff-related cost risks still on the horizon. However, core inflation’s persistence above 3% reinforces the Fed’s cautious tone.

Short-Term View: Bullish for Bonds, USD Impact Limited

Treasuries could see mild buying interest as traders adjust for a slightly cooler inflation profile. The dollar is likely to remain steady, with no decisive shift in Fed policy expectations. Equity markets may find modest support, particularly in consumer and transport sectors benefiting from lower fuel costs, though tariff concerns could cap gains.

More Information in our Economic Calendar.