NEW YORK (Reuters) – U.S. consumer prices increased moderately in July amid lower costs for goods, including used motor vehicles, a trend that could persuade the Federal Reserve to leave interest rates unchanged next month.
The CPI rose 0.2% last month, matching the gain in June, the Labor Department said on Thursday. Though the increase in the annual CPI rate picked up for the first time in 13 months, that was because it was calculated from a lower base after prices subsided last July following a jump that had boosted inflation to a pace not seen in more than 40 years.
MARKET REACTION:
STOCKS: S&P 500 futures rose after the data and were last up 0.6%
BONDS: The yield on 10-year Treasury notes was down 2.3 basis points at 3.984%; The two-year U.S. Treasury yield was down 1.9 basis points at 4.783%.
FOREX: The dollar index fell 0.293%, with the euro up 0.44% to$1.1021.
COMMENTS:
IAN LYNGEN, HEAD OF US RATES STRATEGY, BMO CAPITAL MARKETS, NEW YORK
“Overall, there is nothing within this release that would support a Fed hike next month — September will be a skip. Immediately ahead of the data, the Treasury market was benefiting from a modest bid in anticipation of a consensus print. Since the data, the US rates market has rallied a bit before fading.”
HELEN GIVEN, FX TRADER, MONEX USA, WASHINGTON D.C.
“US CPI released this morning below expectations, prompting an immediate swing down for the US Dollar. This release fuels the fire of speculation that the Fed may not need to hike interest rates a further 25 basis points at all and might be able to afford a sustained pause.”
“It’s important to note, however, that this reading is still higher than last month’s and inflation does remain well above target in the US. This news is likely going to push equities up today and USD down.”
GURPREET GILL, GLOBAL FIXED INCOME MACRO STRATEGIST, GOLDMAN SACHS ASSET MANAGEMENT, LONDON
“Overall, the underlying details of the July CPI inflation data are consistent with ongoing progress on disinflation. Although core services inflation trended higher on the month, other component-level trend are evolving in line with our expectations. In particular, rents and used car prices softened, alongside clothing and airfares.”
“The Fed has emphasized that its September meeting decision will hinge on the totality of data accumulated between now and then. The latest CPI data reinforces our view that July likely marked the peak in the Fed’s hiking cycle, however, we will be closely monitoring the evolution of core PCE inflation and labor market rebalancing to determine whether the disinflation trend is durable.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“Good news on the inflation front and it once again confirms that inflation is going in the right direction. And markets are building on to early gains. But whether or not this will be sufficient for the Fed to declare victory on inflation is somewhat spotty. They would want to get more information, but the good news is that the core inflation is moving in the right direction, actually faster than top line inflation.”
GUY LEBAS, CHIEF FIXED INCOME STRATEGIST, JANNEY MONTGOMERY SCOTT, PHILADELPHIA
“The July CPI report was good, that said it’s been a few months since individual CPI reports have had a material and lasting impact on market conditions, and I suspect that’s because very simply the crisis period of inflation is over and really has been for a few months. And so, the markets are – at least in terms of response to that – getting a little bit more normalish, and that the month to month CPI prints matter less and the intermediate trend matters more.”
“Assuming that the August print is somewhere in this vicinity… I think this largely terminates the rate hike cycle. There’s always a chance we get reacceleration of inflation prints after October, but I don’t think that’s going to spur Fed action.”
BRIAN MULBERRY, CLIENT PORTFOLIO MANAGER, ZACKS INVESTMENT MANAGEMENT, COLORADO
“CPI coming in basically as expected, but it was up from the prior month except for the year over year Core CPI ticked down 0.1% to 4.7. Prices are being driven higher by shelter, energy and food which are the more ‘sticky’ types of prices and they are now picking back up in this moment.”
“This means that we have broken the streak of 12 straight months of price declines, and that would suggest to me that we have taken out the easy inflation in this cycle, and from here, forward prices are likely to be more stubborn. That likely leads to another round of tightening from the FOMC, but more of an issue for equity markets would be if prices remain stubborn then rates will also remain stubbornly high (above 5%).”
“That would be a significant departure from where rates are priced in for 2024.”
RUSSELL PRICE, CHIEF ECONOMIST, AMERIPRISE FINANCIAL SERVICES INC, TROY, MICHIGAN
“This is a Fed friendly report because some of the pressures that we were previously seeing, particularly in travel-related components and new and used car prices, have shown a few months now of deceleration or even decline.”
“The shelter component, which is such a large weighting in the index, both headline and core, is also continuing to decelerate at a slow pace, furthering the narrative that inflation pressure is more broadly easing. The market should like today’s report as that.”
“Today’s report should support the idea that the Fed is likely to maintain its pause in September because inflation is continuing to decelerate even though we had the uptick in the headline because of higher energy prices. All the other components are more broadly trending in the right direction.”
RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, NEW JERSEY
“The market is seeing this to some extent as in line with their broader expectations. The market has become, at these levels, more about avoiding an outlier then necessarily reflecting some steep drop in inflation.”
“The market just wanted to see numbers that suggested that the rate rises could be over and I think they got that to the extent that for now, there really isn’t a lot of pressure on the Fed to do much of anything.”
JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, CHATHAM, NEW JERSEY
“They (CPI numbers) look good in the sense that they’re not worse than expected, actually a little bit better than expected.”
“It’s kind of one of those numbers, right where they expected it to be” “The CPI is on the good path going down, overall if I was the Federal Reserve then this is not a number that says I need to raise rates anymore.””The markets are going to look at it and say we should start to get some pauses if not an end to the Fed rises.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN”Core inflation is drifting lower, but it’s the periphery that we have to watch. Fuel oil popped 3% for the month. Food prices are probably set to rise. The noise around the headline number in the next few months will be a head-fake since the trend is towards lower inflation, but it will be a communications headache for the Fed as they’ll need to remind people that there’s a lot of noise in the data.”
(Compiled by the Global Finance & Markets Breaking News team)
