US CPI report for July reveals key takeaways for markets and the Fed

The Bureau of Labor Statistics dropped its July Consumer Price Index report on August 12, and the numbers tell a story of inflation that’s stubborn but slowly losing steam. Headline CPI rose 0.1% month-over-month, a modest rebound after June’s eyebrow-raising 0.4% decline. On a year-over-year basis, prices climbed 3.4%, ticking down from 3.5% the prior month. What the numbers actually show Core CPI, which strips out the volatile food and energy categories to give a cleaner read on underlying price pressures, increased 0.2% month-over-month. That follows a flat reading in June. Year-over-year, core inflation came in at 2.5%, down slightly from 2.6%. The biggest driver of the monthly increase was, once again, shelter costs. The shelter index rose 0.1% on the month, and that single category accounted for roughly two-thirds of the total monthly gain. Year-over-year, shelter is up 3.2%. Energy, on the other hand, was the hero nobody asked for. The energy index fell 1.5% month-over-month, with gasoline prices dropping 2.9%. But the year-over-year energy picture is dramatically different: energy prices are still up 14.7% compared to July of last year. Food prices nudged up 0.1% on the mon...