- Lead. The Bureau of Labor Statistics reported on August 12 that US consumer prices rose 3.4% in the twelve months through July, down from 3.5% in June but still well above the Federal Reserve’s 2% target and above the pace of wage growth for a fourth consecutive month.
- Fact. Average hourly earnings grew 3.2% over the past year, leaving real wages down 0.2% — meaning the average American worker lost ground to prices for the fourth month in a row.
- Stake. The report reinforces expectations that the Fed will hold rates steady in the near term while keeping a rate hike on the table, with Cleveland Fed President Beth Hammack explicitly urging action to control inflation before the cost rises further.
US consumer prices rose 0.1% in July from June and 3.4% from a year earlier, the Bureau of Labor Statistics reported on August 12, in line with analyst forecasts. The annual rate edged down from June’s 3.5% but remained significantly above the Federal Reserve’s 2% objective, extending a period of elevated inflation driven in large part by energy costs that have surged since the disruption of Middle Eastern supply chains earlier this year.
Core inflation — excluding food and energy — rose 0.2% monthly and 2.5% annually, the slowest annual core reading since March 2021. Shelter costs, which account for a large share of the basket, rose 0.1% for the month and contributed roughly two-thirds of the total monthly increase. Food at home rose 0.1% and food away from home rose 0.3%, while gasoline prices declined 2.9% month over month — providing some relief but leaving energy’s year-on-year contribution elevated.
Wages Falling Behind — Again
With annual inflation at 3.4% and wage growth running at 3.2%, real hourly earnings slipped 0.2% compared with a year earlier. “For middle-income and lower-income Americans, this is the key issue,” said Heather Long, an economist at Navy Federal Credit Union. The four consecutive months of negative real wage growth point to a sustained erosion of purchasing power that the labour market’s nominal gains have not managed to offset.
In contrast to the brief period when inflation dipped below 3%, the rebound in energy costs following disruptions at the Strait of Hormuz has pushed the annual rate back up. Brent crude was near $90 per barrel at the time of the report, and the national gasoline average stood at $4.03 per gallon — levels that continue to weigh on transport-intensive categories across the basket.
Where the Fed Stands
Fed funds futures markets are currently pricing in a roughly 60% probability that the Federal Open Market Committee keeps its benchmark rate in its current 3.50%–3.75% range at the next meeting — up from around 45% a week earlier, suggesting the July CPI did not change the calculus dramatically. Mike Skordeles of Truist said the data “supports our view that the Fed will remain on hold in the near term.”
A dissenting note came from Cleveland Federal Reserve President Beth Hammack, who has pushed for action at recent meetings. “The longer we wait to take action,” Hammack said, “the more expensive it will be for the American people.” Her position highlights the tension inside the FOMC between those who see current rates as appropriately restrictive and those who believe inflation persistence justifies further tightening. The next policy meeting will take place against a backdrop of oil prices still sensitive to Middle Eastern developments and a labour market that, while adding fewer jobs than earlier in the cycle, has not yet broken decisively lower.