US Inflation Rises Below Expectations!
Weekly Market Snapshot
- United States inflation shows optimism as prices rose below forecasts to 3.2% in July 2023
Behind the Headlines: What happened?
The consumer price index, which measures the level of prices, witnessed an increase to 3.2% on a year-on-year basis in July 2023 according to the latest report by the US Bureau of Labor Statistics. This marked an increase from the 3% recorded in June 2023, signifying that the world’s largest economy is not completely out of the woods.
However, the 3.2% reported for last month was lower than analysts’ expectations of 3.3%, a positive omen that inflation has lost some of its grip on the US economy. On a month-on-month comparison, prices also inched higher by 0.2% for July 2023 which was in line with forecasts but concerns still linger that the headline annual inflation remains above the 2% preferred rate of the Federal Reserve.
U.S Consumer Price Index YoY Percentage Change through July 2023
The Inside Scoop:
The increase in July’s inflation level represents a pause in the twelve consecutive months of declines in Uncle Sam’s prices. Core inflation, which excludes the prices of volatile items such as food and energy, eased to 4.7% YoY in July from 4.8% in June while it rose by 0.2% monthly. These latest price figures from the US paint an optimistic picture that an end could be in sight for prices trickling down as significant headway has been made on the inflation front but not quite mission completed yet.
Furthermore, the Labor Department reported that more than 90% of the increase in inflation last month came from shelter costs. This accounts for about one-third of the CPI weighting, which rose 0.4% on a monthly basis and 7.7% from one year ago. In a similar light, food prices rose 0.2% on the month while energy prices surprisingly increased 0.1% despite the rise in global crude oil prices. On the flip side, notable declines were witnessed in used vehicle prices and airline fares to 1.3% and 8.1% respectively.
The Bottom Line:
The Federal Reserve announced in July a hike in the US interest rate by 25 basis points to a range of 5.25% – 5.50%, which was unsurprising as prices continued to slip off the fingers of the apex bank’s preferred rate. Thus, the slight rise in CPI last month, significantly below the 40-year highs of around 9% mid-2022, has proven to justify the Fed’s monetary tightening campaign. However, policymakers continue to hold their grounds that another rate hike could still be on the horizon at the next meeting in September. According to the Fed, “more assurances of a consistent decline in prices need to be achieved before a pause button can be applied to its hawkish stance.”
