New inflation data coming out on Wednesday is expected to show price growth easing slightly, even though recent re-escalations in the war with Iran have sparked oil price volatility.
The closely watched Consumer Price Index is expected to rise 3.4% in July from a year ago, according to economists surveyed by Bloomberg, down slightly from June’s 3.5% annual increase. On a monthly basis, economists expect a 0.1% gain from June, when prices saw a surprise 0.4% drop.
Energy prices rose over the course of July after a ceasefire between the US and Iran fell apart and oil prices moved higher, but prices at the pump remained slightly lower on average than they were in June, according to US Energy Information Administration data.
Core inflation, which strips out volatile food and energy prices, is expected to be up 2.5% from a year ago, and 0.2% from June.
Hotter-than-expected inflation would likely motivate a divided Federal Reserve to hike interest rates at its September meeting, even as the labor market shows signs of weakening.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
As of Tuesday, traders see roughly 50-50 odds of a 25 basis point rate hike next month, according to CME FedWatch, as the Fed grapples with contradictory signals about inflation and the labor market. Although recent inflation readings remain well above the Fed’s 2% target, the US shed jobs last month.
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance.
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