US Inflation Rate Holds Steady at 3.4% in July

The US inflation rate has held steady at 3.4% in July, according to the latest consumer price index report. This moderate increase in prices may reduce the urgency for an interest rate hike, as the Federal Reserve's inflation dashboard shows a seasonally adjusted increase of 0.1% during July.

## Inflation Rates The core CPI, which excludes food and energy, rose 0.2% in July, with annual rates of 3.4% and 2.5% for the CPI and core CPI respectively. These rates are down 0.1 percentage point from June, indicating a possible easing of the energy-fueled burst earlier in the year.

The readings were in line with the Dow Jones consensus forecasts, and the tame monthly readings, coupled with similarly moderate levels in June, suggest that prices remain volatile and subject to changing conditions in the Middle East. The Federal Reserve's 2% target was still exceeded, but the moderate monthly readings may indicate a reduction in the likelihood of an imminent interest rate hike.

## Market Reaction The release of the report led to an increase in stock market futures, while Treasury yields were negative across the board. Traders further cut the probability for a September rate hike, lowering the odds to 42%, according to the CME Group's FedWatch gauge of futures prices. This reduction in the likelihood of a rate hike is likely due to the moderate increase in prices and the easing of the energy-fueled burst.

## Sector Performance The report shows a mixed performance across different sectors, with energy prices dropping 1.5% for the month, following a 5.7% decrease in June. However, the sector still saw an annual increase of 14.7% due to sharp gains in prior months. Other sectors, such as food and shelter, saw modest increases of 0.1% in July, while new vehicle prices rose 0.1% and used cars and trucks increased 0.4%. The following table summarizes the performance of different sectors: | Sector | Monthly Change | Annual Change | | --- | --- | --- | | Energy | -1.5% | 14.7% | | Food | 0.1% | - | | Shelter | 0.1% | - | | New Vehicles | 0.1% | - | | Used Cars and Trucks | 0.4% | - | | Medical Care | 0.4% | - | | Airline Fares | 2.2% | - |

According to Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, the in-line inflation will keep the 'no need to hike rates' narrative intact, but the storyline could still change with another round of inflation data before the September FOMC meeting. The Federal Open Market Committee will have an additional month of inflation data to digest before making a decision, and markets are now pricing a stronger chance for a move in October or December.