Aug. 15 at 4:01 AM
The Consumer Price Index (CPI) edged up 0.1% in July, following a decline in the previous month (led by energy), while core CPI, which excludes food and energy, rose 0.2%. On a y/y basis, the CPI eased to 3.4% from 3.5%, while the core dipped to 2.5% from 2.6%. Core inflation matched the pre-Iran war rate, which was the lowest since March 2021.
It suggests that higher energy prices from the war have had no meaningful impact on core inflation, so far.
Short term rates running above Fed Funds are projecting a Fed hike, but while upside risks to U.S. inflation remain, including from supply shocks and AI-driven demand, the recent inflation report suggests that the Fed does not have to rush to a rate hike in September. If they do, it will likely be a 0.25% hike, which is already priced into the market.
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