Stabilizing energy prices helped cool off inflation pressures for the second straight month, new government data released on Aug. 12 show.
July’s U.S. annual inflation rate slowed to 3.4 percent, from 3.5 percent in the previous month, according to the Bureau of Labor Statistics’ Consumer Price Index report.
This was in line with economists’ expectations.
Crude oil and gasoline prices fell early last month amid optimism that the war in Iran would be winding down after both sides reached an earlier fragile ceasefire deal. The agreement eventually fell through, with Washington and Tehran accusing each other of violating the memorandum of understanding. They resumed fighting, sending energy prices higher after the Strait of Hormuz was disrupted again, impacting traffic in the narrow Gulf channel.
The sharp slide in oil markets was enough for the energy index to register back-to-back declines for the month, falling 1.5 percent in July. Due to the conflict in Iran, annual energy costs are up nearly 15 percent.
Gasoline fell almost 3 percent, while fuel oil decreased nearly 2 percent, the bureau said.
“Energy prices fell in July as investors had high hopes that the Middle East crisis would improve,” Jeffrey Roach, chief economist at LPL Financial, told The Epoch Times in an emailed note. “The decline in energy prices helped soften the inflation pressures of the month. Unfortunately, those high hopes were short-lived.”
The national average for a gallon of gasoline remains above $4, according to the American Automobile Association.
On a monthly basis, consumer prices rose 0.1 percent, matching the market forecast.
The shelter index accounted for about two-thirds of July’s tepid increase, rising 3.2 percent year over year.
Shelter inflation has remained stubborn over the last few years, despite economists and monetary policymakers widely expecting it to cool sharply by now.
Food prices rose 0.1 percent. Supermarket costs slipped 0.1 percent, but food away from home advanced 0.3 percent.
Meat prices fell almost 1 percent, driven by a 0.8 percent decline in beef, a 1.5 percent drop in pork, and a 0.7 percent decrease in chicken. Eggs were little changed, but are down almost 26 percent year over year.
Underlying inflation remained tame, providing a modicum of relief for the Federal Reserve as it wrestles with the prospect of raising interest rates next month.
Excluding the volatile energy and food categories, the 12-month core inflation rate also eased to 2.5 percent, from 2.6 percent.
From June to July, core inflation jumped 0.2 percent. Both readings matched the consensus forecast. Prices for tariff-sensitive items picked up steam in July.
The indexes for new vehicles and apparel ticked up just 0.1 percent.
Appliances rose 0.8 percent, televisions increased 1.8 percent, smartphones climbed 1.1 percent, and canned fruits and vegetables dropped more than 1 percent.
Looking ahead to the August Consumer Price Index, the Cleveland Fed Inflation Nowcasting Model anticipates the 12-month rate holding steady at 3.4 percent.
“As the economy reaches the end of the year, we should expect inflation to decelerate to 2.7% as transportation costs and health care costs ease,” Roach said.
Following last week’s weak jobs report and stable consumer prices, investors could brace for the central bank to keep policy intact.
“The big surprise with a report that had no surprises (all of the data came perfectly in line with the estimates) is that a situation where inflation isn’t reaccelerating, coupled with the most recent, weak jobs report, gives the Fed more time to wait,” Chris Zaccarelli, CIO for Northlight Asset Management, said in a note emailed to The Epoch Times.
“Typically, the market would be buoyed by the thought of rate cuts, but in a world where many are expecting rate hikes, anything that can delay – or squash the need for – rate hikes will be viewed positively.”
The Fed will hold its next two-day September policy meeting on Sept. 15 and 16.
