US consumer prices likely increased moderately in July as gasoline prices eased

By Lucia Mutikani

WASHINGTON, Aug 12 (Reuters) – U.S. consumer prices likely increased moderately in July, which could further reduce financial market expectations for the Federal Reserve to raise interest rates this year.

The Labor Department’s Consumer Price Index report on Wednesday would follow on the heels of news last week of surprise job losses last month. Economists said the United States’ position as a net oil exporter and the drawing down of petroleum inventories had cushioned the hit on the economy from the oil price shock sparked by the Middle East conflict. 

Still, they viewed inflation risks as tilted to the upside, with no resolution to the U.S.-Israeli war with Iran. President Donald Trump accused Iran of being “devious negotiators” in an interview released late on Monday and described some of his ​current options in the war — “just bop along” and let Tehran fail ‌economically or hit them “really, really hard.”

“I don’t expect any significant firework when the numbers come out,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University. “I don’t really see the Fed either raising or lowering interest rates, unless things turn out badly for both unemployment and the CPI.”

The CPI likely rebounded 0.1% last month, a Reuters survey of economists predicted, after falling 0.4% in June – the first decline in six years. In the 12 months through July, the CPI was forecast to have increased 3.4% after advancing 3.5% in June.

The anticipated small monthly increase in the CPI would reflect a further decline in gasoline prices, which averaged $4.064 a gallon in July compared to $4.184 in June, according to data from the Energy Information Administration. Gasoline prices have dropped from an average of $4.609 a gallon in May.

Food prices likely increased marginally, in line with their recent trend. Goods prices, including household furniture and apparel amid the fading pass-through from tariffs, will likely account for the moderate rise in the CPI. 

INFLATION STILL RUNNING ABOVE TARGET

Outside the volatile energy and food components, the CPI was forecast to rise 0.2% last month after being unchanged in June. That would translate to a year-on-year increase of 2.5% in the so-called core CPI inflation. 

The U.S. central bank tracks the Personal Consumption Expenditures price indexes for its 2% inflation target. While cooler inflation readings could further temper rate hike expectations, they would likely be of little comfort to consumers, with wages not keeping up with prices.

“It’s an improvement, but both of those numbers are still extremely high and unpleasant for consumers,” said Tani Fukui, an economist at MetLife Investment Management.

The high cost of living has soured many Americans’ views of Trump, and could weigh on the Republican party’s chances in the November midterm elections that will determine control of the U.S. Congress for ​the next two years. 

Trump won the 2024 presidential election in large part because of his promise to lower inflation.

Core inflation was seen lifted by rebounds in the prices of used cars and trucks as well as education and communication goods. Increases were also expected in airfares. A mild pick-up in rents was anticipated, but economists were divided on whether prices for hotel and motel rooms would continue their decline. 

Still, benign core CPI inflation readings were unlikely to be replicated in the core PCE price measure, which left some economists to continue to expect the Fed to tighten monetary policy in September. Prior to the data, economists forecast core PCE inflation rising 0.2% over the month after gaining 0.1% in June. That would translate to a year-on-year increase of 3.3%, which would match June’s rise. Components in the core basket have different weights in the core CPI basket.

“A report in line with our expectations would strengthen the case for the Fed hiking in September,” said Stephen Juneau, a U.S. economist at Bank of America Securities.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci )