July CPI Report: Inflation Eases Slightly as Markets Eye September Fed Meeting
The Consumer Price Index (CPI), a widely followed measure of inflation reflecting the average change in prices paid by consumers for a broad basket of goods and services, was released earlier this morning for the month of July.
CPI rose 0.2% month-over-month (m/m) and 2.7% year-over-year (y/y), consistent with June’s annual pace but slightly cooler than the prior month’s 0.3% m/m increase.
A key contributor to the monthly increase was shelter costs, which make up more than one-third of the CPI calculation. Shelter rose 0.2% m/m, continuing to exert upward pressure on overall inflation. In contrast, energy prices fell 1.1% m/m, led by a 2.2% decline in gasoline, offering modest relief to consumers at the pump.
CPI Home: U.S. Bureau of Labor Statistics (bls.gov)
The table below shows m/m percentage changes in CPI indexes which include Core CPI, Food and Energy (Core CPI excludes Food and Energy).
Source: Consumer Price Index Summary (bls.gov)
Fed Focus: Inflation Still Above Target
Price stability remains one of the Federal Open Market Committee’s (FOMC) primary mandates, and inflation continues to run above the Fed’s long-term 2% target. In its July 30th statement, the Federal Reserve reaffirmed its commitment to using all available tools to guide inflation back to target levels.
Looking ahead, the next FOMC interest rate decision is scheduled for September 16–17, 2025, with the August CPI report due on September 11.
Market Outlook: Rate Cut Expectations Rise
Recent economic data, including this CPI release and softer non-farm payroll numbers, has increased market expectations for a potential rate cut at the Fed’s September meeting. According to CME FedWatch, the probability of a cut has now climbed to over 90%.
With inflation showing signs of moderation and economic momentum slowing, attention now turns to Chair Powell and the FOMC as they weigh their next policy move.
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