July’s inflation report is out and the number is finally coming down. CPI is up 8.5% YoY but is flat MoM. As illustrated above, energy prices came down 4.6% MoM and that helped zero out the monthly CPI change. Food prices continued to rise, up 1.1% MoM and 10.9% YoY. Core CPI , which excludes volatile energy and food prices, went up 0.3% last month, down from June’s 0.7% gain but was still up 5.9% YoY.
Price pressures do seem to be easing as the monthly increase slowed across most categories except for food. Used cars are cheaper and clothes are being discounted. The price for services increased 0.4% MoM compared to the average hourly wage increase of 0.5% in July. In terms of housing, the rent index rose 0.7 percent in July and the owners’ equivalent rent index rose 0.6 percent. But the index for lodging away from home continued to decline, falling 2.7 percent in July after a 2.8-percent decrease in June. The index for airline fares fell sharply in July, decreasing 7.8 percent. I suppose travel demand is easing and hotel and flights are getting cheaper. I am personally quite excited with this development.
Despite the flat CPI MoM, core CPI is still up 0.3% MoM. The Fed’s target inflation rate is 2%. There’s going to be another CPI report before the September FOMC meeting. If we continue to see deceleration of price increases and falling energy prices, we might get a smaller rate hike than 0.75% at the next FOMC meeting. The stock market is already celebrating this possibility and Dow was up 500 points during the session. I am already looking forward to seeing August’s inflation report to see if the inflation is really coming down.