July inflation cools, easing Fed pressure

Inflation remained steady in July, giving consumers and the Federal Reserve some encouraging news.

The Labor Department reported yesterday that consumer prices increased 0.1% last month, bringing annual inflation down to 3.4%, from 3.5% in June.

A closely watched measure that removes volatile food and energy costs also showed signs of improvement. Core prices increased 2.5% year over year, down from 2.6% in June and essentially matching February’s lowest reading since 2021.

Cheaper fuel played a major role in July’s slowdown. Gas prices fell 2.9% during the month as hopes for progress in Middle East peace talks helped calm energy markets. But slowing progress in peace talks has pushed oil prices higher. Gasoline remains near $4, well above the roughly $3 level before the conflict started in late February, according to AAA.

Grocery prices edged lower for the first time since March.

However
Housing costs continued to rise but at a moderate pace. Rent and homeownership costs increased 0.3%, while lower hotel prices helped keep overall shelter costs in check.

Some other prices moved higher. Airfares jumped 2.2%, and used-car prices increased 0.4%. Furniture prices stayed unchanged.

What is the Fed thinking?
The latest figures could make the central bank less likely to raise interest rates in September. Traders now see about a 60% chance that the Fed will keep rates unchanged.

Still, inflation remains above the 2% target, meaning policymakers will continue watching prices closely.