Inflation Data
Inflation in July rose by 0.2%, driven mainly by higher housing-related costs, bringing the annual inflation rate to 2.9%. This inflation data was in line with expectations. Core inflation, excluding food and energy, increased by 0.2% for the month and 3.2% annually, marking the lowest rates since early 2021. The report suggests that the Federal Reserve might consider an interest rate cut in September. However, mixed signals in various categories, such as rising shelter costs and declining automotive prices, indicate persistent inflation in some areas. Despite easing overall, certain "sticky" inflation components remain a concern for economic observers.
Consumer Spending Remains Strong
Consumer spending in July exceeded expectations, with retail sales rising 1%, driven by strong performance in motor vehicles, electronics, and food. The labor market also showed resilience, with initial unemployment claims decreasing to 227,000, lower than anticipated. Despite ongoing inflation, which eased slightly in July to a 2.9% annual rate, there are mixed signals in the economy, as rising import prices and a weakening manufacturing sector.
Wholesale Prices Steady
In July, the producer price index (PPI) rose by just 0.1%, below expectations, signaling easing wholesale inflation and potentially paving the way for the Federal Reserve to consider lowering interest rates. The core PPI, excluding food and energy, was flat, while the year-over-year headline PPI dropped to 2.2% from 2.7% in June. Despite a notable increase in energy prices, declines in services, especially trade services, kept overall inflation subdued. The data, coupled with declining consumer inflation expectations, strengthens the likelihood of a Fed rate cut in September, though the size of the cut remains uncertain.
