Key facts
- US consumer prices rose 0.1% in July, with the annual inflation rate falling to 3.4%.
- Core inflation, excluding volatile food and energy, rose 0.2% monthly and 2.5% annually.
- Energy prices declined in June but increased in July, with gasoline up 15% year-over-year.
- The US labor market saw an unexpected loss of 23,000 jobs in July.
- Average hourly earnings decreased by 0.2% after accounting for inflation.
- The Federal Reserve is considering interest rate decisions amid persistent inflation and weak employment data.
US consumer prices saw a slight easing in July, with the annual inflation rate dipping to 3.4%. This cooling, however, comes as prices remain elevated compared to pre-war levels, and core inflation, which excludes volatile food and energy costs, saw a modest increase. The energy index declined slightly from the previous month, with gasoline prices falling nearly 3% but remaining about 15% higher than the year before. Brent crude prices saw fluctuations tied to the collapse of a US-Iran peace deal.
Adding to economic uncertainty, the US labor market experienced an unexpected loss of 23,000 jobs in July, with previous months' gains also revised downward. Real wage gains for hourly employees were erased by inflation, decreasing by 0.2% after adjustments. This data comes as the Federal Reserve deliberates its next move on interest rates. While the cooling inflation and weak jobs report might reduce pressure for an immediate rate hike, persistent inflation and ongoing energy disruptions, particularly related to the Strait of Hormuz, present continued upside risks.
Fed Chair Kevin Warsh has committed to achieving price stability and reaching the Fed's 2% inflation target, emphasizing that interest rates would not be the sole tool used. However, some Federal Reserve bank presidents, including Lorie Logan, have expressed concerns about inflation remaining too high and are amplifying calls for rate increases. Policymakers will await further data before their September meeting.