Key facts
- The July consumer price index report is due for release.
- Inflation is expected to cool to 3.4% in July.
- June's inflation rate was 3.5%, the lowest since March.
- Wage growth slowed to 3.2% in July.
- Energy price index growth moderated in June.
The Bureau of Labor Statistics is scheduled to release the July consumer price index (CPI) report at 8:30 a.m. ET, with expectations for inflation to continue its cooling trend. Economists forecast a modest decrease to 3.4% for July, down from 3.5% in June, which was the lowest rate since March.
Factors contributing to the anticipated decline include rising rental vacancy rates that are moderating rent growth, a less burdensome tariff environment compared to the previous year, and more stable wage gains. David Kelly, chief global strategist at J.P. Morgan Asset Management, noted these eroding inflationary forces but cautioned that the pace of decline depends on global oil market stability, particularly concerning traffic through the Strait of Hormuz.
A key metric to monitor is whether inflation has outpaced wage growth for a fourth consecutive month. Wage growth in July slowed to 3.2% annually, marking the lowest increase since 2021. ZipRecruiter economist Nicole Bachaud highlighted that despite nominal wage increases, rising prices leave middle- and low-income households with less disposable income, impacting their economic viability.
Energy prices are also a significant area of focus, influenced by geopolitical events affecting the oil market. The energy price index saw its year-over-year growth cool to 15.7% in June from a peak of 23.5% in May.
The new CPI data follows a disappointing jobs report released on Friday, which indicated job losses in July and downward revisions to previous employment figures. Cory Stahle, senior economist at the Indeed Hiring Lab, suggested that anemic wage growth and weak hiring suggest employers are not under pressure to attract workers, potentially prioritizing benefits over wage increases.
The Federal Open Market Committee will consider another CPI report before its mid-September meeting to decide on interest rates. Current market expectations, as indicated by CME FedWatch, show a roughly 50-50 probability for a rate hike or no change.