As Expected

August 10, 2023

One of the most important economic releases for August came out today (Thursday August 10th) – the July CPI report – revealing the latest inflation dynamics at play in the United States.

August has been a challenging month for investors, as markets have reversed their upside trendlines sharply in the first several trading days of this month. The inflation reports appeared to be pretty much “as expected” and markets reacted positively (at least for today!)

The CPI report came in mostly as expected – 0.2% rise month over month – both on the headline reading and on the Core CPI reading (which excludes volatile food and energy prices).

Year over year CPI rose to 3.2% (versus 3% in the prior month and slightly below expectations of 3.3%) – and down from an 8.5% year-over-year increase in July 2022.

A few details from today’s report:

*Monthly may be more relevant – many are focusing more on monthly changes at this point (versus year over year). This is due to how volatile monthly swings were in 2022 and how using them in the year-over-year calculations now make those readings just as volatile

*Core inflation (again, which takes out food and energy) is the Fed’s preferred measure and it is holding steady. Monthly increase of 0.2% was in line with expectations and tracked with last month – and year-over-year Core showed a slight decline down to 4.7% from 4.8% last month (and 4.8% expectations).

*The acceleration in July, which was slightly smaller than economists had expected, primarily reflected an increase in the cost of housing, which rose 0.4% during the month and contributed more than 90% to the overall monthly rise. Shelter costs are now up 7.7% from a year ago.

*Other than shelter, the report was relatively mild, reflecting a world that has made a lot of progress in price stability over the past two years. Costs for core goods outright declined for the month, largely pulled down by falling prices for both new and used cars. Prices for both medical and energy services declined from June to July as well, while apparel costs stayed flat. Airline fare prices also fell during the month.

As with all inflation reports, there is considerable data to digest and analyze. But in my view, the key takeaway from this report is that it’s likely “good enough” for the Federal Reserve to remain on hold come September. A lot can change between now and then, but for today, we’ll accept “as expected” as good news!

Onward we go,

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