CPI Inflation Rate Trends Tame, Signaling Patient Fed, But S&P 500 … – Investor’s Business Daily

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The consumer price index rose modestly in July, the Labor Department reported Thursday morning, with the annual CPI inflation rate rising slightly less than expected. The S&P 500 rose solidly after the open but slashed gains as Treasury yields jumped.
The inflation figures reinforce expectations of no change in Federal Reserve policy.
July consumer prices rose 0.2% vs. the prior month. Core CPI, which excludes food and energy, climbed 0.2% from June. Both matched Wall Street forecasts.
The overall annual CPI inflation rate increased to 3.2% vs. June’s 3%. That year-over-year increase reflected flat prices in July 2022 vs. June 2022.
Core CPI inflation came in at 4.7%. Wall Street had forecast an unchanged 4.8%.
Core goods prices fell 0.3% for the month, with the 12-month change now just 0.8%. Core services prices climbed 0.4% from May. The 12-month increase edged down to a still-hefty 6.1%.
The average hourly wage rose a solid 4.4% in June vs. a year earlier. But the latest IBD/TIPP Poll found that just 16% of adults say their wages have kept pace with inflation, the lowest since at least February 2022. Some 58% say they haven’t kept up. That’s vs. 20%-55% in July.
Some of that increased sense of falling behind likely reflects rebounding gasoline prices. Prices at the pump are still down vs. a year earlier, but up significantly in the past several weeks.
Gasoline prices rose 0.2% vs. June, according to the CPI report, but plunged 19.9% vs. a year earlier.
Separately, initial claims for jobless benefits rose 19,000 to 248,000. That’s still historically low, but above views for just 229,000.
The Fed policy impact may be minimal. First, policymakers knew that a higher July CPI inflation rate would largely reflect tough year-earlier comparisons, not a reacceleration of price pressures broadly.
The three-month annualized change in consumer prices slowed to 2.3% in July vs. 2.7% in June, 3.1% in May and 3.8% in March. The three-month annualized rate for core CPI cooled to 4.1% from June’s 4.7% and May’s 5.1%.
Second, Fed officials have signaled they are near the end of rate hikes, taking a wait-and-see approach.
After a pause in June, policymakers hiked rates by a quarter-point at the July 25-26 Fed meeting. Fed chief Jerome Powell said the late September meeting would be “live,” meaning a rate hike was possible, but he gave hints that the central bank would take no action, noting that the inflation-growth risks are “balanced.”
Since then, policymakers have given some mixed signals since the July Fed meeting, but generally have signaled patience.
Philly Fed President Patrick Harker, who’s a voting member this year, said Tuesday, “I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.”
After the July CPI report, markets saw just a 9.5% chance of another rate hike at the Sept. 20 meeting, down from 13% before the report. The odds rise to about 29% by the Nov. 1 meeting, also down slightly from before the inflation reading.
By that Nov. 1 meeting, Fed officials will have CPI inflation and jobs reports through September, as well as the first reading for third-quarter GDP growth.
Investor Sentiment Sours As Economic Optimism Index Hits One-Year Low
The S&P 500 opened solidly higher following the CPI report in Wednesday stock market action, but closed with just a fractional gain.  The S&P 500 rallied 16.4% year to date through Wednesday, despite the recent pullback.
The 10-year Treasury yield jumped nearly 8 basis points to 4.08% after getting as low as 3.96%.  The benchmark yield surged to a 2023 high of 4.21% intraday on Aug. 4 before pulling back sharply. But a higher 10-year yield reflects a surge in Treasury issuance and stronger economic growth. Short-term Treasury yields, more closely tied to Fed policy, have fallen or held steady in the past few weeks.
On Friday, the Labor Department will release the July producer price index. Economists expect the PPI and core PPI to show a 0.2% monthly gain. The PPI inflation rate should rise to 0.7% from 0.1%, while the core PPI inflation rate dips to 2.3% from 2.4%.
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