The latest U.S. Consumer Price Index (CPI) figures for July paint a complicated picture for the inflation outlook, as headline inflation slowed but underlying price pressures remain elevated.
According to data released Thursday, the CPI rose 2.7% year-over-year, slightly below economists’ expectations. However, the core inflation rate — which strips out volatile food and energy prices — increased 3.1%, coming in hotter than forecasts and signaling persistent inflationary pressures.
Market watchers had hoped for a sharper decline in both measures, which could have strengthened the case for a larger interest rate cut from the Federal Reserve in September. Instead, the split readings are likely to reinforce a cautious stance from policymakers.
The inflation release had an immediate, if modest, impact on financial markets. Bitcoin climbed just below $119,000 shortly after the data was published, as traders reacted to the possibility of a rate cut later in the year. U.S. Treasury yields slipped, while equity futures turned slightly higher.
The Fed’s balancing act is becoming increasingly complex. While moderating headline inflation supports the argument for monetary easing, the stubborn core rate underscores the challenges in bringing inflation back to the central bank’s 2% target.
Some analysts believe the July data all but locks in a quarter-point cut next month. Others argue that the Fed may prefer to wait for August’s inflation numbers and additional labor market data before making a decision.
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