July Inflation Report to Show Whether Prices Are Cooling
Economists expect consumer prices rose 3.4% from a year earlier, down from 3.5% in June, as a divided Federal Reserve weighs a rate hike.
WASHINGTON — The government's July consumer price report, due Wednesday, is expected to show inflation easing slightly, offering the clearest signal yet on whether price increases are cooling or stuck at an elevated level.
Economists surveyed by FactSet expect consumer prices rose 3.4% in July from a year earlier, down from 3.5% in June and well below the recent peak of 4.2% in May. On a monthly basis, prices are expected to have risen just 0.1%, after falling in June on sharply lower gas costs.
Core inflation, which excludes food and energy and which the Federal Reserve watches especially closely, may cool for a second month, to 2.5% from 2.6% in June. Core prices likely rose 0.2% from June to July.
Americans have faced worsening inflation since early last year, after tariffs raised the cost of imported goods. The Iran war then pushed oil and gas costs higher this spring, lifting inflation to a three-year high, while the buildout of artificial intelligence has increased prices for computer chips and electronic equipment. All three effects could prove temporary.
A cease-fire in the U.S.-Iran war brought gas prices down, but they have climbed again. Gas averaged $4.01 a gallon nationwide Tuesday, 13 cents higher than a month earlier, meaning August's reading could rise.
Price increases have exceeded the Fed's 2% target for more than five years. Services such as health care, restaurant meals and car maintenance are rising at more than 3% a year and are not especially sensitive to gas prices or AI investment.
"You've got all these things that are just not the way the economy used to behave," said Diane Swonk, chief economist at KPMG.
Some retailers, including Walmart, have rolled back food prices. Others are still passing costs along: Sherwin-Williams plans an 8% increase effective Sept. 1, CEO Heidi Petz told analysts, citing "higher oil and related cost pressures."
The Fed left its key rate at about 3.6% late last month on a 9-3 vote, with three officials favoring a hike. Chair Kevin Warsh said that if inflation stays elevated, "interest rates could well be part of that solution." Investors put the odds of a September hike at roughly 50-50, according to CME FedWatch. Employers cut jobs in July, a sign of weakness that typically argues against raising rates.
This article was produced with the assistance of artificial intelligence (AI), in accordance with our editorial policy.
