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United States Inflation July 2019

United States: Headline inflation strengthens in July

Consumer prices rose 0.3% over the prior month in July, up from the 0.1% increase registered in June. The print was driven by a rebound in energy prices on the back of a sharp recovery in gasoline prices; higher medical care costs; pricier transportation costs; and steady housing price pressures. Conversely, prices for food were unchanged in the month, while apparel prices rose at a softer rate in July. Core consumer prices—which exclude volatile items such as food and energy—also rose 0.3% in July, matching June’s increase and marking the strongest back-to-back price gains since the early 2000s.

Inflation edged up to 1.8% in July from 1.6% in June, overshooting market expectations of 1.7%, on rising underlying price pressures, with core inflation inching up to 2.2% in July from 2.1% in June. The core personal consumption expenditures price index—a separate gauge that is closely monitored by the Fed—ticked up to 1.6% in June, the last month for which data is available, remaining below the Bank’s 2.0% target.

Remarking on the implications of stronger core price pressures on the Fed’s deliberations, Leslie Preston, senior economist at TD Economics, noted:

“After years of underperforming their target, core inflation is likely not hot enough yet to have the Fed too concerned. Given the latest escalation in the China-U.S. trade war we still expect the Fed to make another insurance rate cut in September. However, today’s data is a reminder that inflation is not dead and suggests that the Fed may not cut as much in the months ahead as markets currently expect.”

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