U.S. inflation data due as July CPI is seen easing further

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U.S. inflation July CPI

Highlights

Consensus forecasts expect July CPI at 3.4%, down from 3.5% in June, reflecting further easing in U.S. inflation.
Energy price index growth slows to 15.7% year over year in June from a 23.5% peak in May, despite ongoing Iran conflict pressures.
Wage growth drops to 3.2% in July, the slowest since 2021, while the U.S. jobs report reveals job losses and 100,000 fewer prior jobs added than previously reported.

July CPI outlook and inflation drivers

As reported by Business Insider, the Bureau of Labor Statistics is scheduled to publish the July CPI report at 8:30 a.m. ET, with consensus forecasts pointing to annual inflation of 3.4%, down from 3.5% in June.

June's reading marked the lowest rate since March and came in below the expected 3.8%. David Kelly, chief global strategist at J.P. Morgan Asset Management, says forces reducing inflation include rising rental vacancy rates, slower rent growth, a less onerous tariff regime than a year earlier and moderating wage gains.

Kelly also says the speed of further disinflation depends in part on how quickly normal traffic returns through the Strait of Hormuz. Energy remains a key category to watch as the Iran war and its effects on the oil market continue, although growth in the energy price index slows to 15.7% year over year in June from a 23.5% peak in May.

Labor market pressure and rate implications

A central question in the report is whether inflation outpaces wage growth for a fourth straight month. Wage growth slows to 3.2% over the year in July, the weakest increase since 2021, raising pressure on household purchasing power, especially for middle- and low-income consumers that rely heavily on pay gains.

Nicole Bachaud, an economist at ZipRecruiter, says higher nominal pay does not necessarily leave workers with more money at month end when prices are still rising. The inflation update also follows Friday's weak jobs report, which shows the U.S. sheds jobs in July and includes downward revisions indicating about 100,000 fewer jobs were created in the prior two months than previously reported.

Cory Stahle, senior economist at the Indeed Hiring Lab, says soft wage growth and weak hiring suggest employers are not under significant pressure to attract workers and may be prioritizing health benefits over wage increases. Another CPI report is due before the Federal Open Market Committee meets in mid-September, and CME FedWatch data on Tuesday afternoon shows roughly even odds between another rate hike and unchanged policy.

In our earlier article on the July U.S. CPI preview and Fed rate timing, we outlined expectations for modest monthly gains that would keep annual inflation above the Fed’s 2% target. We also noted that markets were pricing roughly even odds of a September hike, with policy expectations sensitive to energy-price risks and signs of softening or resilience in the labor market.

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