A key measure of US consumer prices rose only modestly for a second month, bolstering hopes that the Federal Reserve can tame inflation without sparking a recession.
The core consumer price index, which excludes often-volatile food and energy costs, rose 0.2% for a second month, Bureau of Labor Statistics data showed Thursday. That marked the smallest back-to-back gains in more than two years.
Economists view the core measure as a better indicator of underlying inflation than the overall CPI, which also increased 0.2% in July and 3.2% from a year ago. The pickup in the annual measure reflected a less-favorable comparison with the index a year ago.
The core gauge was up 4.7% from July 2022. While still elevated, underlying inflation has slowed nearly every month since peaking at 6.6% in September.
| Indicator |
Actual change |
Median estimate |
| CPI (MoM) |
+0.2% |
+0.2% |
| Core CPI (MoM) |
+0.2% |
+0.2% |
| CPI (YoY) |
+3.2% |
+3.3% |
| Core CPI (YoY) |
+4.7% |
+4.7% |
The progress on inflation, combined with solid economic growth and a healthy but gradually cooling labor 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 have yet to tip the nation into a recession many economists once thought was inevitable.
The latest CPI report is just one of a number of key data releases Fed officials will have in hand ahead of their September meeting. Should current trends continue, it’s likely the Fed will leave rates unchanged next month.
US stock futures rose, Treasury yields pared declines and the dollar weakened.
The details showed more than 90% of the increase in the overall CPI was due to housing costs that have otherwise moderated since the start of the year. Car insurance also contributed to the gain.
Used-car prices, meanwhile, fell for a second month, while airfares posted the biggest back-to-back declines since the start of the pandemic. The cost of groceries increased by the most since early this year.
Supercore Inflation
Excluding housing and energy, services prices rose 0.2% from a month earlier, a pickup from June, according to Bloomberg calculations. The metric was up 4.1% from a year ago after a 4% advance in June.
While Fed Chair Jerome Powell and his colleagues have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index. The July personal consumption expenditures price index, which is also the basis of the Fed’s 2% target, will be released later this month.
The acceleration in services prices last month was partially offset by deflation in merchandise, led by a decline in used car prices. So-called core goods prices, which exclude food and energy commodities, fell by the most since March of last year.
Shelter costs, which are the biggest services component and make up about a third of the overall CPI index, rose 0.4% for a second month. A moderation in housing costs is an essential feature for a sustained downward trend in core inflation.
The sustained strength in the economy and moderating inflation have prompted several economists — including those at the Fed — to drop their forecasts for a recession altogether. Consumers, meanwhile, are finally benefiting from rising real wages.
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