Fin-X Rapid Response August 13th
US CPI softened in July, exactly in line with consensus. Arriving days after a weak payrolls report, it provides the FOMC cover to hold rates in September rather than deliver the hike some members had pushed for. Breakevens and bond yields were steady at the close, while odds of a September rate increase remain around 40%. Nevertheless, the inflation risks are skewed to the upside with potential pressure from multiple sources.
The +0.1% increase in the month of July and +3.4% annually were exactly in line with consensus, rebounding from June's unexpectedly weak -0.4% monthly decline, the largest since April 2020.
Core CPI of +0.2% mom and +2.5% yoy was also in line with forecasts and matched the February 2026 reading, which was the slowest annual pace since March 2021.
The shelter component was only up +0.1% mom, despite the rent and owner’s equivalent rent sub-indices rising by a much larger +0.3%. Even so, it still accounted for roughly two-thirds of the total monthly increase.
Energy prices declined by -1.5% in July but were still up +14.7% for the year.
Food prices rose by +0.1% during the month with food away from home rising by +0.3% mom.
Motor vehicle insurance (-0.3%) was among categories that declined.
Also released last night, real average hourly earnings declined by -0.2% in July, while weekly earnings rose by +0.1%.
This followed the weaker-than-anticipated +3.2% increase in nominal average hourly earnings in Friday’s labour report, which were -0.2% lower than the downwardly revised +3.4% yoy in June.
The "supercore' measure of services ex-shelter, a lead indicator for wages, rose by +0.2% for the month and +2.8% yoy.
S&P500 7,749 +0.3%, Nasdaq Comp. 26,588 +0.5%, S&P/ASX200 future 9,128 -0.3%,
US 2yr 4.20% -1bp, US 10yr 4.69% +1bp
US dollar (DXY) index 100.01 +0.2%, AUDUSD 0.7062 (unch), Gold US$/oz 4,408 +0.9%
Fin-X View
Although very much in line with consensus expectations, the picture painted of gradually cooling inflation could have an impact on short-term policy decisions.
The FOMC voted 9-3 in favour of a hold on 29th July, with three dissenters wanting to hike. Coming in the wake of a July jobs report miss that showed nonfarm payrolls falling -23,000 and accompanied by substantial downward prior revisions, last night's weaker CPI and falling real hourly earnings, as well as easing market measures of breakeven inflation, remove some of the pressure on the Federal Reserve to act in September.
However, with July PCE due in late August and still tracking above CPI, the market is still pricing a 40% chance of a September increase.
Despite the positive impression from current data, we judge that the medium-term inflation risks are still skewed to the upside.
Energy prices could easily flare up again as strategic reserves approach very low levels.
On the trade front, tariff pass-through risks are still present. Tomorrow's producer prices are still expected to show an annual increase of +4.9%, down from +5.5% last month, but still placing upward pressure on future consumer prices. Moreover, there are still risks coming from higher commodity prices and cost pressures on Chinese manufacturers that could increase import prices.
Perhaps most significantly, the labour market and wage data are lagging indicators. Labour supply is declining, and any sign that demand for workers is increasing could rapidly alter the outlook. Good news on the activity front could quickly turn into very bad news for inflation and rates.
Source: Bloomberg, BLS, 13th August 2026
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