At a high level, July’s Consumer Price Index (CPI) had a bit of something for everyone.
The latest data from the Bureau of Labor Statistics showed that “core” inflation, which excludes volatile food and energy costs, rose 3.1% over the past year in July, ahead of June’s 2.9% increase. But on a headline basis, the Consumer Price Index (CPI) increased 2.7% on an annual basis in July, matching June‘s number and slower than economists’ expectations of a 2.8% rise.
In a note to clients following the release, Renaissance Marco’s head of economics Neil Dutta zoomed in on the headline increase, which came in better than expected.
“If tariffs are causing an inflation problem, then headline inflation rates ought to be accelerating,” Dutta wrote. “However, overall inflation is not rising as rapidly as expected likely because nominal growth remains sluggish.”
Dutta points out that over the past six months, headline CPI has increased at a 1.9% annualized rate, the slowest pace seen since October 2024. In his view, July’s CPI data “cements” a September interest rate cut from the Fed. Markets seem to agree for now, with traders pricing in a roughly 94% chance the Fed lowers rates in September, per the CME FedWatch Tool.
“You might be thinking, why not a bigger upfront move,” Dutta wrote. “Doves on the FOMC need to fight one battle at a time. There is a wide contingent of folks on the FOMC with tariff derangement syndrome, not seeing cuts at all this year. They won’t be able to make the leap from no cuts to a large upfront move overnight.”
