US Consumer Prices Forecast to Rise Moderately in July as Gas Prices Drop
- It's an improvement, but both of those numbers are still extremely high and unpleasant for consumers.
U.S. consumer prices likely increased moderately in July as gasoline prices eased, a trajectory that could further reduce financial market expectations for the Federal Reserve to raise interest rates this year, according to a Reuters survey of economists.
The Labor Department’s Consumer Price Index report, scheduled for release on Wednesday, follows news of surprise job losses last month. Economists noted that the United States’ position as a net oil exporter and the drawing down of petroleum inventories cushioned the economy from the oil price shock sparked by the Middle East conflict. Even so, analysts view inflation risks as tilted to the upside due to the U.S.-Israeli war with Iran.
July CPI Forecasts and Energy Price Trends
The Consumer Price Index likely rebounded 0.1% in July, according to economist projections, following a 0.4% drop in June that marked the first decline in six years. Over the 12 months through July, the CPI was forecast to increase 3.4%, compared to a 3.5% advance in June.
The anticipated small monthly increase reflects a further decline in retail gasoline prices. According to Energy Information Administration data, gasoline averaged $4.064 a gallon in July, down from $4.184 a gallon in June and well below the May average of $4.609 a gallon. Food prices likely increased marginally in line with recent trends, while goods prices—including household furniture and apparel—faced fading pass-through from tariffs.
“I don’t expect any significant firework when the numbers come out,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University, as reported by Reuters. “I don’t really see the Fed either raising or lowering interest rates, unless things turn out badly for both unemployment and the CPI.”
Core Inflation and Federal Reserve Policy Outlook
Outside volatile energy and food components, the core CPI was forecast to rise 0.2% in July after being unchanged in June. That would translate to a year-on-year increase of 2.5%. Core inflation pressures were driven by rebounds in used car and truck prices, education and communication goods, and airfares, alongside a mild pick-up in rents.
While the central bank tracks the Personal Consumption Expenditures price indexes for its 2% inflation target, cooler CPI readings offer little comfort to households. Wages are still failing to keep up with overall price growth.
It’s an improvement, but both of those numbers are still extremely high and unpleasant for consumers.
Tani Fukui, MetLife Investment Management
The high cost of living has weighed on public sentiment toward President Donald Trump and could impact the Republican party’s standing ahead of the November midterm elections that will determine control of the U.S. Congress. Trump won the 2024 presidential election largely on promises to lower inflation. Meanwhile, economists remain divided on whether benign core CPI readings will translate to the core PCE price measure, leaving some forecasters anticipating a potential Fed tightening move in September.