CPI Report: Inflation Drops Below 3%

Key Takeaways

Inflation drops to 2.9% for first time since 2021
Year on year CPI comes in at 2.9%; 3-month core CPI falls to 1.6% index
StoneX’s Kathryn Rooney Vera suggests possible future recession

StoneX’s Chief Market Strategist Kathryn Rooney Vera joined Bloomberg Opinion for live coverage of release of the latest consumer price index data, and offered her insight as to the affect it could have the Fed’s decision for a September rate cut. According to the U.S. Department of Labor, inflation was up in July, buffering the chances of an interest rate cut in September.

“Certainly I think at this point the data that we’re looking for today is going to help us determine from a market perspective how big of a cut September’s is, not if we’re going to get a cut. Will it be .25, will it be .50 or something more.” Rooney-Vera said. The Fed is scheduled to meet again Sept. 17-18.

With the consumer price index up 0.2% for the month, the resulting 12-month inflation rate came in at 2.9%.

The core CPI was up 0.2% monthly for a 3.2% annual rate, which is the lowest annual rate since March 2021.

Shelter costs rose 0.4%, accounting for 90% of the all-items inflation increase. Food prices were up 0.2%, with energy remaining unchanged.

Concerns that a tightening job market might be slowing has also raised the chance of the Fed cutting rates. “So, I think that the Fed does cut, I think they want to cut, I think they need to focus more on the unemployment side than the inflation side,” said Rooney Vera. “If the Fed is able to cut for their inflation target, that’s good. If the Fed has to slash rates because unemployment surges, I think the uptick in unemployment is somewhat concerning. It’s concerning to me; it’s concerning to the Fed. They have to get ahead of this because what they don’t want to occur is an unforced error in the sense of precipitating a recession that otherwise could have potentially been prevented.”

Rooney Vera continues, “I think it’s really hard to see inflation moving down to 2% when you have pretty robust labor market, pretty strong economic growth, and confidence in the labor market. People are still going to consume. So, something’s got to give. I’m not calling for a recession, but I do think the risks are much higher than currently placed in the market. I have a 40% probability or chance of recession over the next 12 to 18 months.”

The data also showed automotive prices fell, with new vehicles down 0.2% and used autos down 2.3%. Fed expectations of an easing of the shelter index were not met with rent increases at 0.4%, up 5.3 annually. Other categories experiencing deflation include medical care services (-0.3%), apparel (-0.4%) and core commodity prices (-0.3%).

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