US consumer prices saw a modest raise in prices in July, potentially minimising pressure on the Federal Reserve to increase rates at its forthcoming September meeting.
The Consumer Price Index (CPI) rose 0.1% month over month, while core CPI, which excludes volatile food and energy prices, surged 0.2%, according to the Bureau of Labor Statistics. Both readings matched Dow Jones consensus estimates.
On an annual basis, headline inflation eased to 3.4%, while core inflation sharply declined to 2.5%, with both measures declining 0.1 percentage point from June.
Energy rates continue to ease
The latest data shows that the dynamic raise in inflation earlier this year may be losing momentum.
Energy prices declined 1.5% in July, following a 5.7% drop in June.
However, energy costs remained 14.7% higher than a year earlier, reflecting sharp increases recorded earlier in 2026 amid significantly raising tensions in the Middle East.
Food and shelter prices each raised 0.1% during July. Shelter remained a major contributor to overall inflation, accounting for roughly two-thirds of the monthly headline increase, as per the BLS.
Markets minimise rate-hike expectations
Financial markets responded positively to the inflation report. Stock futures moved higher, while Treasury yields sharply dropped.
Moreover, traders minimised expectations for a September rate surge, with the probability falling to nearly 42%, as per CME Group’s FedWatch gauge.
Other categories showed mixed price movements. New vehicle prices surged 0.1%, used cars and trucks rose 0.4%, medical care climbed 0.4%, and airline fares jumped 2.2%.
Fed decision still uncertain
The Federal Open Market Committee will not meet again until September, giving policymakers another month of inflation data before making their next decision.
Recent weakness in the labor market, combined with moderating inflation, has minimised expectations for a sudden surge in raise.
Markets are now increasingly pricing in the possibility of a hike later in October or December, rather than September.
