CPI report shows inflation eased in July to a 3.4% annual pace

Inflation eased for the second consecutive month, rising at a 3.4% annual pace in July, in line with economists\u0027 expectations and a signal that some consumer price pressures may be easing.\u00a0By the numbersEconomists polled by the financial data firm FactSet predicted July inflation rose at an annual rate of 3.4%.The CPI, a basket of goods and services typically bought by consumers, tracks changes in prices over time.Core CPI, which excludes the more volatile energy and food categories, also slowed in July, rising at an annual rate of 2.5%, down from 2.6% in June.Inflation has eased since hitting a three-year high of 4.2% in May, when oil prices surged, sending gasoline costs soaring. Still, the inflation rate remains well above its pre-war level of 2.4% in February.\u00a0With the CPI cooling to a 3.5% annual pace in June, some economists say May could mark an inflationary peak for 2026, with some forecasting that inflation will continue to ease throughout the year.\u00a0Impact of energy pricesEnergy prices in July jumped 14.7% from a year ago, with the increase mostly driven by higher gas prices, which rose 24.6%, the Bureau of Labor Statistics said.Oil prices surged in July as tensions escalated in the Strait of Hormuz and Iran-backed Houthi rebels in Yemen targeted shipping in the Red Sea. The escalating conflict pushed Brent crude, the international benchmark, from about $71 a barrel at the start of the month to above $100 by July 23.\u00a0While oil prices have eased since then, American drivers paid an average of $4.06 for a gallon of gasoline last month, data from the U.S. Energy Information Administration showed. That compares with an average of about $3 a gallon in February, before the Iran war began.\u00a0Still, average daily gas prices in July were about 10 cents cheaper than in June, Moody\u0027s Analytics chief economist Mark Zandi told CBS News in an email before the July CPI data release, citing Bureau of Labor Statistics data.Barring fresh escalations in the Iran war, inflation could continue to ease, dipping close to the Federal Reserve\u0027s 2% annual goal by this time next year, Zandi added.\u00a0What this means for the Federal ReserveJuly\u0027s inflation data will be critical to the Federal Reserve\u0027s September interest rate decision, following a surprisingly weak jobs report last week. The July labor market report showed employers\u00a0cut 23,000 jobs last month, rather than a forecast of 95,000 new hires, suggesting the labor market may be much weaker than previously thought.\u00a0Because of that, many economists now expect the Fed to hold rates steady at the September meeting to support the labor market. Before the jobs report, there was a higher probability that the Fed would hike rates next month to tame inflation, according to CME FedWatch, which bases its probabilities on 30-day Fed funds futures prices.The Fed will receive one more CPI reading ahead of its next interest rate decision on Sept. 16, with the August inflation report scheduled for Sept. 11.

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