Title: Consumer Price Index Shows Modest Gain in July, Inflation Rate Remains High
Subtitle: Fed Policy Unaffected, S&P 500 Holds Near 52-Week High
Date: [Current Date]
The consumer price index (CPI) data released by the Labor Department on Thursday revealed a modest monthly gain in July, while the annual CPI inflation rate continued to rise. However, these inflation figures are not expected to prompt any changes in Federal Reserve policy.
Economists predicted that July’s CPI would increase by 0.2% compared to the previous month, following a similar gain in June. Core CPI, which excludes food and energy costs, was also expected to rise by 0.2% compared to June. On an annual basis, the CPI inflation rate is projected to pick up to 3.3% from June’s reading of 3%, while the core inflation rate is anticipated to hold steady at 4.8%.
Although the average hourly wage registered a solid 4.4% rise in June compared to the previous year, a recent IBD/TIPP Poll indicated that only 16% of adults believe their wages have kept pace with inflation, the lowest level since at least February 2022. In contrast, 58% of respondents reported falling behind. This mismatch is likely influenced by the recent rebound in gasoline prices, which have increased significantly in the past few weeks.
Despite concerns surrounding the CPI inflation report, the S&P 500 index has experienced a pullback but remains near its 52-week highs.
It is expected that the Federal Reserve’s policy will not be significantly impacted by the CPI inflation report, unless there is an unexpected and significant increase. Policymakers understand that the higher July CPI inflation rate is primarily due to difficult comparisons with the previous year, rather than a widespread reacceleration of price pressures.
Furthermore, the Federal Reserve has indicated that it is close to the end of its rate hikes and is taking a more cautious approach. After pausing in June, the central bank raised rates by a quarter-point at the July meeting. Fed chair Jerome Powell mentioned that the late September meeting could result in a rate hike, but also hinted that no immediate action is likely, citing “balanced” inflation-growth risks.
Market expectations for another rate hike at the September 20 meeting are at just 13%, increasing slightly to over 30% by the November 1 meeting. The odds have been trending lower in the past week. By the November meeting, Federal Reserve officials will have access to CPI inflation and jobs reports through September, as well as the initial reading for third-quarter GDP growth.
In other market news, the S&P 500 has demonstrated a year-to-date rally of 17.2% despite its recent pullback. The 10-year Treasury yield stood at 4.02% before the release of the CPI inflation report, with short-term Treasury yields remaining steady or falling in recent weeks. The higher 10-year yield reflects increased Treasury issuance and stronger economic growth.
Meanwhile, the Labor Department is set to release the July producer price index (PPI) on Friday. Economists predict a 0.2% monthly gain for both the PPI and core PPI. The PPI inflation rate is expected to rise from 0.1% to 0.7%, while the core PPI inflation rate is projected to slightly decrease from 2.4% to 2.3%.
Investors will continue to monitor market trends and the impact of economic indicators, such as the CPI and PPI reports, to make informed investment decisions.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
YOU MAY ALSO LIKE:
– Catch The Next Big Winning Stock With MarketSmith
– Want To Get Quick Profits And Avoid Big Losses? Try SwingTrader
– Best Growth Stocks To Buy And Watch
– IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today
– Futures Rise As Market Rally Holds Support; Two Big AI Losers