U.S. Inflation Missed Expectations in July

Aug 10, 2018

U.S. inflation unexpectedly held steady in July, relieving the pressure on the Federal Reserve to speed up its normalization of monetary policy.

Consumer price inflation rose by an annualized 2.9% in July, the Labor Department said, missing expectations for an acceleration to 3.0%.

Inflation remains a central concern for markets as increasing price pressures would be a catalyst to push the Fed toward raising interest rates at a faster pace than currently forecast.

The Fed left rates on hold at the current range of 1.75%-2.00% last month and offered few additional signals for monetary policy, other than noting the solid economic strength, which kept a move in September firmly on the table.

Overall, the Fed tracks a different inflation measure, the personal consumption expenditures price index excluding food and energy, which eased back down to 1.9% in June.

The core PCE index had hit its 2% objective in May.

Friday’s release also showed that, month-on-month, CPI rose 0.2% in July, in line with the consensus forecast.

Core CPI, a key gauge of underlying consumer price pressures that excludes food and energy costs, increased by 0.2% from a month earlier, in line with forecasts.

In the 12 months through July, core CPI rose 2.4%, compared to 2.3% a month earlier. Economists were looking for it to hold steady at June’s 2.3% advance.

Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure precisely because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less.