US Inflation Records Lowest Rise in Two Years

The headline consumer price index in the United States rose modestly for the second month in a row, boosting hopes that the Federal Reserve can tame inflation without triggering a recession.

Bureau of Labor Statistics data Thursday showed that the core consumer price index, which excludes the often volatile food and energy costs, rose 0.2% for the second month. This is the lowest consecutive gain in more than two years.

Economists see the core index as a better indicator of inflation than the headline CPI, which also rose 0.2% in July and 3.2% y-o-y, as core inflation slowed y-o-y.

Core inflation rose 4.7% in July on an annual basis, and while it remains elevated, core inflation has slowed almost every month since it peaked at 6.6% in September.

                                            Indicator Expectations %           Actual Change %

Gross inflation - monthly                0.2                                         0.2

Headline inflation - annualized     3.3                                         3.2

Core inflation - monthly                  0.2                                         0.2

Core inflation - annualized             4.7                                         4.7

Progress on inflation, along with strong economic growth and a progressively healthy job market, represents another step in the right direction for the central bank. The highest interest rates in 22 years have played a role in calming price pressures, but they have not yet pushed the country into a recession that many economists thought was inevitable.

The latest CPI report is likely to boost the odds that the Federal Reserve will leave interest rates unchanged at its meeting next month. However, officials will have a number of other key data points to consider before then.

Details showed that more than 90% of the increase in the overall CPI was due to housing costs, which have been moderate since the beginning of the year. Meanwhile, used car prices fell for the second month, while airline ticket prices recorded the biggest consecutive declines since the start of the pandemic.

Yet, US households faced an increase in the costs of necessities last month, as grocery store food prices rose the most since early this year, as did rising utilities and soaring gasoline prices. Car insurance rose to the highest level since 1976 year on year.