CPI inflation cooled slightly in July, largely as expected, a day after a tame PPI inflation report. The S&P 500 rose slightly Wednesday. Markets still see a Federal Reserve rate cut next month, but are pricing out expectations for a big move.
CPI Inflation
The Labor Department reported the July consumer price index climbed 0.2% vs. June, or 0.15% unrounded. Core CPI, which excludes food and energy, rose 0.2%, or 0.17% unrounded. Both were in line for 0.2% monthly gains, according to Econoday.
CPI inflation came in at 2.9% vs. a year earlier. That's vs. forecasts for 3%, unchanged vs. June.
Core inflation was 3.2%, the lowest since April 2021. Economists forecast 3.2%, dipping from June's 3.3%.
Core CPI's six-month annualized rate fell to 2.8%, while the three-month rate cooled to 1.6%. Both were the lowest since March 2021.
On Tuesday, Labor reported cooler-than-expected producer prices, with core PPI flat vs. June. The 12-month PPI inflation rate came in at 2.2%, well below forecasts for 2.6% and June's upwardly revised 2.7%. Core PPI inflation was 2.4%, down from June's 3%.
The two reports give economists a strong idea about the Fed's favorite inflation gauge, the core PCE price index. The core PCE gets about 70% of its inputs from the CPI and 30% from the PPI.
Fed Rate Cut Odds
Markets now see a 35.5% chance of a 50-basis-point cut in September vs. 64.5% for 25 basis points. Before the CPI inflation data, investors saw a 52.5% chance of a half-point Fed rate cut, ticking higher Tuesday after the PPI report.
Fed chief Jerome Powell is expected to give a policy address at the annual Jackson Hole monetary policy symposium late next week.
S&P 500 Wavers
The S&P 500 rose 0.4% on Wednesday, closing fractionally above the 50-day line.
The S&P 500 index jumped 1.7% Tuesday, above the 21-day moving average. The stock market staged a follow-through day, confirming the new uptrend, as AI chip leader Nvidia powered higher for a second straight session.
Nvidia stock climbed 1.6%. Wednesday, approaching the 50-day line.
The 10-year Treasury yield fell to 3.82%. On Tuesday, the 10-year Treasury yield fell six basis points to 3.85%.
Retail Sales Ahead
A bevy of economic reports is due out Thursday morning.
At 8:30 a.m. ET, investors will get July retail sales, weekly jobless claims as well as August readings for the Philly Fed manufacturing index and the New York Fed's Empire State manufacturing index. The July industrial production report is due at 9:15 a.m., followed by the NAHB Housing Market Index at 10 a.m.
While markets have largely focused on inflation data for the past few years, recent recession fears have raised other reports' importance.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
