The US Labor Department reported that the consumer price index rose 0.1% in July from the previous month, while core CPI, which excludes food and energy, increased 0.2%, reflecting easing price pressures. Compared with the same period a year earlier, headline inflation was 3.4% and core CPI was 2.5%, in line with analyst expectations. After the data release, financial markets responded positively, with US stock futures rising while US Treasury yields fell, and investors scaled back expectations that the Fed would raise interest rates at its September meeting. Data from CME Group's FedWatch indicated the probability of such a move was about 42%. Energy prices fell 1.5% in July after declining 5.7% in June, but were still up 14.7% from a year earlier. Food prices and housing costs each rose 0.1%, with the housing category accounting for about two-thirds of the monthly increase in the CPI. Among key goods categories, new vehicle prices rose 0.1%, used cars and trucks rose 0.4%, medical care services rose 0.4%, and airline fares rose 2.2%. The Fed's policy-setting committee is scheduled to meet again in September. At its July meeting, the FOMC voted 9 to 3 to keep the policy rate unchanged, and the three dissenting members favored a rate increase, prompting markets to place greater weight on the possibility that the Fed may consider adjusting rates at its October or December meeting instead.
Inflation data reduces Fed rate hike expectations, leading to lower Treasury yields.
