The US CPI report for July is expected to continue the pattern of slowing inflation seen in recent months.
Forbes reports that current expectations for a September rate cut are so high that nothing other than very worrying inflation data is likely to keep the Federal Open Market Committee (FOMC) from avoiding a widely expected rate cut at its next meeting on September 18.
The US authorities will release the CPI data for July on August 14, 2024. The CPI data for June saw a monthly change in prices of -0.1% and 0.1% for the core CPI.
The core CPI excludes movements in food and energy prices, Forbes said. The June CPI report recorded annual inflation of 3% for the overall CPI and 3.3% for core inflation.
Current forecasts and predictions
The Cleveland Fed’s inflation forecast sees the headline CPI rising to 0.24% in July and the core CPI rising to 0.27% for the same period.
The PCE price index, due out on August 30, is also expected to show a similar pattern of 0.2% monthly inflation for the overall CPI and 0.22% for the core CPI, according to Forbes, according to current estimates.
These estimates, if maintained, would equate to annual inflation of 2% to 3%, according to Forbes. So the July inflation report is unlikely to alarm the FOMC, and will maintain the overall narrative that inflation is returning to lower levels, albeit perhaps more slowly than the committee would like.
Increasing importance of job data
Forbes notes that with inflation on the rise since 2021, it’s understandable that inflation has received the bulk of the FOMC’s attention in recent years. However, as inflation has edged closer to the committee’s target over the past year, jobs data has become more important in the committee’s decision-making process.
That’s because inflation, at around 3% now, is relatively close to the committee’s 2% annual target. However, the committee’s other primary goal is full employment, according to Forbes, and the unemployment rate has been steadily rising from 3.4% in the summer of last year to 4.3% according to the July jobs report.
This rise in unemployment may be enough to cool economic growth, and perhaps enough to prompt the committee to back down from its current relatively hawkish stance on interest rates. So inflation data may no longer be the decisive factor the committee focuses on.
What to expect
Forbes expects the July inflation report to continue the relatively moderate inflation trend of recent months, according to current expectations.
This trend alone may be enough for the committee to cut interest rates in September, as markets widely expect.
