United States Inflation July 2017

United States

United States: Inflation unexpectedly soft in July

August 11, 2017

July’s inflation report signaled a continuation in the perplexing trend of subdued inflation for the fifth consecutive month, despite a tightening labor market. July’s soft reading could spark a more cautious response from the Federal Reserve at their September meeting as stagnating inflation weighs on their agenda to tighten monetary policy and press forward with their “dot plot” four interest rate hikes plan.

Consumer prices adjusted for seasonal factors inched up 0.1% in July from the previous month after two months of flat readings. July’s gains were a result of an increase in prices for medical care, food and transportation, although partially offset by declines in prices for oil and natural gas.

Inflation rose from 1.6% in June to 1.7% in July. Moreover annual average inflation also rose from 1.8% in June to 1.9% in July, which was an over-four-year high.

Core consumer prices, which exclude food and energy prices, rose 0.1% from the previous month in July, replicating June’s increase. Core inflation was 1.7% in July, the same reading as in May and June and the softest figure in two years. Core inflation is one of the measures most closely followed by the Federal Reserve to determine the extent of inflationary pressures on the economy. Core inflation in July was unexpectedly curbed by drops in prices for lodging away from home (such as hotels).

In mid-July, Federal Reserve Chair Janet Yellen acknowledged that inflation has increasingly become a source of concern for Fed officials as recent CPI reports have repeatedly missed market expectations. July’s report followed suit, undershooting market expectations on all accounts. Although recent inflation reports may deter the Fed from another rate hike, it does not seem likely to keep them from starting the balance sheet reduction, which is expected to be announced to begin after their upcoming September meeting.

In line with the Federal Reserve’s outlook, our panel expects inflation to trend higher later this year. A tight labor market should cause inflation pressures to build through the remainder of the year. FocusEconomics Consensus Forecast participants expect inflation to average 2.4% in 2017, which is unchanged from last month’s forecast. For 2018, the panel expects inflation to average 2.3%.


Author:, Economist

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USA Inflation July 2017

Note: Year-on-year and month-on-month variation of seasonally-adjusted consumer price index in %.
Source: Bureau of Labor Statistics.


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