August 16, 2024
August 14, 2024
US CPI rose by 0.2% in July over the month and by 2.9% over the year. Core CPI increased by 0.2% in July over the month and by 3.2% over the year. Today’s drop below 3% is a remarkable event as consumer inflation has been keeping above this level for more than a year (see chart). At the same time Core CPI keeps showing a slow but steady sliding toward the target (see chart). This prosses is being assisted by downward dynamic in monthly inflation as it has accelerated easing since May (see chart).
The data is positive for Fed seeking to start policy easing as signs of recession began looming. The first cut is expected as soon as in September meeting, however, it it is still a question whether it will be 0.25 or 0.5 slash. For now, 0.50 cut looks like rather possible outcome as recent data showed rapid rise in unemployment in July to 4.3% hinting on risk of coming recession. On the other hand, this labor market easing is a good disinflationary sign which will likely lead to further price deceleration.
⭐️Summary:
Inflation is in line with the Fed’s desire to see price pressure subsiding. The September’s meeting cut is highly possible. Whether it is 0.25 or 0.50 cut will be more clear with incoming labor market data in the beginning of the next month.