The Consumer Price Index rose 3.4% for the 12 months ending July, down from 3.5% in June, marking the second consecutive month of cooling inflation as energy prices moderated, according to data released by the Bureau of Labor Statistics on Wednesday.
On a monthly basis, headline consumer prices increased 0.1% in July, a modest gain that reflected broad-based softness in spending. Energy prices declined 1.5% for the month, with gasoline falling 2.9%, continuing the downward pressure on inflation that began in June when prices dropped 0.4% month-over-month.
The July reading came in line with economist expectations and followed a sharp deceleration in June, when the annual CPI rate fell to 3.5% from 4.2% in May. That June decline was driven largely by a 5.7% drop in energy prices following a ceasefire-related commodity shock that pushed gasoline down 9.7% for the month, according to Reuters. The more modest July decline suggests energy’s role in pulling down inflation is moderating, even as prices remain elevated compared to year-ago levels.
Core inflation, which excludes volatile food and energy costs, rose 0.2% in July on a monthly basis, a slight uptick from June’s flat reading. On an annual basis, core CPI stood at 2.6% year-over-year, according to multiple sources, indicating that underlying price pressures remain sticky despite the headline slowdown.
The July inflation report strengthens the case for the Federal Reserve to hold interest rates steady at its September meeting, according to experts surveyed by CBS News and RSM US LLP. The Fed currently maintains its federal funds rate in a range of 3.5% to 3.75%, where it has held steady since July as officials balance inflation concerns against labor market conditions. “Based on the July CPI data, we expect the central bank to keep the federal funds policy rate in a range between 3.5% and 3.75%,” RSM said in a statement released Wednesday.
The moderation in inflation over the past two months represents a meaningful shift after May’s spike to 4.2%, the highest annual rate in three years. However, inflation remains above the Federal Reserve’s 2% target, and Treasury Secretary Bessent recently declared the K-shaped economy over, signaling confidence that price pressures are broadening beyond energy-dependent sectors. The continued cooling in headline inflation, paired with persistent core inflation, presents a mixed picture that leaves room for debate among Fed officials about the timing and pace of any future rate adjustments.
Economists caution that while energy prices have provided significant downward momentum, the sustainability of this trend remains uncertain. CPI inflation slowed to 3.4% in July as prices rose just 0.1%, reflecting the small monthly gain, and further declines in the annual rate will depend on whether energy prices stabilize or decline further in coming months. The July report also showed that food prices rose 0.2% month-over-month, adding modest upward pressure to the headline number.
Sources
- Bureau of Labor Statistics — official Consumer Price Index summary showing 3.4% annual inflation in July, monthly breakdown of energy and gasoline declines
- CNBC — reporting on the July CPI release with month-over-month and year-over-year figures, economist expectations
- CBS News — expert commentary on Fed policy implications and expectations for September rate hold
- Kiplinger — analysis of July CPI data and Fed rate-hike odds following the report
- Reuters — context on June inflation decline driven by gasoline price drop and energy moderation
- RSM US LLP — statement on expected Fed policy response to July CPI data
- Morningstar — July CPI report highlights and monthly inflation rate breakdowns
