CPI Inflation Data Remains Steady in July, Gold Prices Rise

Key Takeaways

  • Both CPI and core-CPI, which excludes volatile categories, rose 0.3% in July.
  • The latest data points to mild inflationary pressures in July, and most likely in the near future.
  • On an annual basis, core-CPI rose to 2.2%, a six-month high.
Goods and services such as gasoline and rent saw price gains in July, although the increases are still in line with mild inflation pressure. The latest report contains no data that would likely discourage the Fed from implementing further rate cuts, and another rate cut is expected at the end of the month.
The cost of living rose 0.2% to 1.8%, well below the peak seen last year of 2.9% when inflationary pressures were much higher. The core-CPI, which excludes the volatile components of food and energy, rose 0.3% in July and 0.1% on an annual basis.
The rise in consumer prices is partially attributed to the increased cost of gasoline which typically rises during the summer due to increased demand, but prices have already begun to dip. Energy prices rose 1.3%, while the cost of food remained flat overall. While grocery prices have fallen, the cost of eating out has increased proportionately, possible due to recent minimum wage laws compelling restaurateurs to pay their workers more.
The costs of rent, prescription drugs, used vehicles, medical care, airline fares, clothing, and household furnishing rose in July. Hourly wages dipped 0.1% monthly, although have seen a 1.3% increase for the past year. While the CPI informs the Fed of inflationary pressure to an extent, the preferred measure of the central bank is the PCE which has risen 1.4% in the past year, well below the 2% inflation target.
Inflation continues to show mild pressure, which should give the Fed room for more rate cuts if circumstances require. Recent headwinds such as the trade conflict between the US and China, uncertainty over Brexit, and a general global slowdown have all contributed to the decision to introduce the first rate cuts in a decade last month.

Market Reaction

The price of spot gold has risen on the day, last trading at $1,517.32 and up 0.80% with a high of $1,534.32/oz and a low of $1,505.49/oz. Gold faced some selling pressure following the release of the CPI report, but overall has maintained upward momentum in an increasingly uncertain market.
TD Securities strategists attribute the increase to geopolitical fear and uncertainty, and a desire to invest in a safe haven asset like gold.
 “Facing a wall of worries, global capital is chasing safety and has been willing to pay top-dollar in order to acquire it,” TD Securities strategists write. “The ongoing fears of capital outflows from Hong Kong [are] spurring continued appetite for safe haven assets, which are in short supply.”