The U.S. Bureau of Labor Statistics reported on August 12 that annual consumer price inflation eased to 3.4% in July, down from 3.5% the previous month, as energy prices moderated and core inflation showed signs of stabilization.
The Consumer Price Index rose a modest 0.1% on a seasonally adjusted basis in July, following a 0.4% decline in June. The index level reached 333.918, with core CPI—which excludes volatile food and energy costs—rising 0.2% month-over-month and 2.5% year-over-year.
The data aligned closely with economist expectations and provided relief to markets that had been pricing in persistent inflation pressure. Shelter costs remained the largest contributor to the monthly increase, while gasoline prices helped drag the headline figure lower.
The Federal Reserve, which primarily tracks the Personal Consumption Expenditures price index, has held rates steady at 3.50% to 3.75% through multiple meetings. The cooling inflation data strengthens the case for maintaining current policy while the central bank assesses whether the downward trend is durable.
Treasury yields retreated from recent highs following the report, with the 10-year yield falling below 4.7%. Equity markets extended their August rally, with the S&P 500 and Dow Jones Industrial Average both reaching record highs as investors interpreted the data as reducing the likelihood of a near-term rate hike.
Energy prices, which had surged amid Middle East tensions, showed signs of stabilization. Gasoline costs fell 0.9% in July, while electricity prices ticked up modestly. Food prices rose 0.2%, with grocery costs edging higher while restaurant prices held steady.
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