July CPI: Inflation Comes in Light, As Expected

Consumer prices rose only modestly in July, leaving Wall Street a little more convinced that the Federal Reserve will keep interest rates level at its September meeting.

The U.S. Bureau of Labor Statistics said Wednesday that July's consumer price index (CPI), which measures the change in prices on a variety of consumer goods and services, rose by a seasonally adjusted 3.4% year-over-year—in line with estimates and a notch below June's 3.5% headline figure. On a month-over-month basis, prices did reverse last month's 0.4% decline, but they only ticked up by 0.1%, which also matched estimates.

"Core" CPI—a measure of inflation that excludes food and energy costs (factors that are more volatile than the other prices tracked by the Labor Department)—was also plenty softer than expected. Core inflation came in up 0.2% MoM and 2.5% YoY, coming in exactly where economists predicted.

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Equities bounced Tuesday morning, with Wall Street believing the report will stay the Fed's hand at its next rate-setting meeting.

"One down, one to go," says Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. "With another round of inflation data due before the September FOMC meeting, it remains all to play for, but today’s in-line report was a good start. Contained core inflation adds to the encouraging signs in last month’s release of a moderation in underlying inflation, helping strengthen the case for a September hold."

Here's a quick look at July's key CPI figures:

• MoM CPI: +0.1% (estimate: +0.1%)
• YoY CPI: +3.4% (estimate: +3.4%)
• MoM Core CPI: +0.2% (estimate: +0.2%)
• YoY Core CPI: +2.5% (estimate: +2.5%)

This report will be updated.

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