Capitol Economics: CPI Report Suggests 25bp Rate Cut in September
The consumer price index (CPI) report for July indicates a need for a 25 basis point rate cut, according to strategists at Capitol Economics. All-items CPI and core CPI both saw modest increases last month, signaling a return to a disinflationary trend. Despite an annual rise of 2.9% in headline CPI, economists had expected a figure closer to June's 3.0% increase.
The core CPI, which excludes volatile categories like food and energy, rose 3.2% over the past twelve months, slightly below expectations. This data, along with Tuesday's PPI report, supports the idea that inflationary pressures are moderate, giving the U.S. central bank room to lower its policy rate.
Capitol Economics estimates that core PCE prices likely increased by 0.17% in July, pushing the annual core PCE inflation rate to 2.7%. However, the one-month, three-month, and six-month annualized rates suggest a mixed outlook for inflation.
Overall, the CPI report for July is seen as mildly encouraging, providing further evidence for a 25 basis point rate cut in September. While it supports a modest reduction, it does not indicate a significant collapse in price pressures that would warrant a larger 50 basis point cut.
In conclusion, investors should pay attention to these inflation indicators as they could influence the Federal Reserve's decision on interest rates. A potential rate cut could impact borrowing costs, investment opportunities, and overall economic conditions. Stay informed and be prepared for potential changes in the financial landscape.