Consumer Inflation in July +0.2%, Shelter Accounted for Over 90% of Rise

Annual inflation rose for the first time in twelve months on a year-over-year basis, accelerated to 3.2% in July 2023 from 3% in June, but below forecasts of 3.3%. It marks a halt in the 12 consecutive months of declines, due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%. Core CPI eased to 4.7% from 4.8% in June, below expectations of 4.8%.

On a monthly basis, CPI was steady at 0.2% month-over-month (consensus 0.2%) with the index for shelter was the largest contributor again, 90% of the increase. Core CPI, which excludes food and energy, was also up 0.2% month-over-month (consensus 0.2%), easing from a 0.3% increase in the previous month. The Federal Reserve would be relieved from the report.


US JULY 2023 Highlights


  • US CPI (M/M) Jul: 0.2% (est 0.2%; prev 0.2%)
  • US CPI (Y/Y) Jul: 3.2% (est 3.3%; prev 3.0%)
United States Inflation Rate
United States Inflation Rate
United States Consumer Price Index (CPI)
United States Consumer Price Index (CPI) MoM

Core inflation:

  • US Core CPI (M/M) Jul: 0.2% (est 0.2%; prev 0.2%)
  • US Core CPI (Y/Y) Jul: 4.7% (est 4.7%; prev 4.8%)
United States Core Inflation Rate
United States Core Inflation Rate
United States Core Inflation Rate MoM

Real Earnings

  • US Real Avg Weekly Earnings (Y/Y) July: +0.2% (prev 0.6%)
  • US Real Avg Hourly Earnings (Y/Y) July: +1.1% (prev 1.2%)

Where the Prices Changed

  • The index for shelter was by far the largest contributor (0.4%, the same as in June), accounting for 90% of the increase.
  • Prices also went up for motor vehicle insurance (2% vs 1.7%), education, and recreation.
  • Food cost rose slightly more (0.2% vs 0.1% in June)
  • Energy slowed (0.1% vs 0.6%), mainly due to gasoline (0.2% vs 1%).
  • On the other hand, airline fares recorded the biggest decline (-8.1%)

Price changes over last year (CPI report) …

  • Energy cost slumped In July 2023, energy cost fell 12.5%, less than a 16.7% drop in June, with prices declining at a smaller pace for fuel oil (-26.5% vs -36.6%), gasoline (-19.9% vs -26.5%) and utility gas service (-13.7% vs -18.6%).
  • Cost of apparel (3.2% vs 3.1%)
  • Transportation services (9% vs 8.2%) increased more.
  • Electricity prices rose 3%, below 5.4% in June
  • Food (4.9% vs 5.7%), shelter (7.7% vs 7.8%)
  • New vehicles (3.5% vs 4.1%).
  • The cost of medical services was down 1.5% (vs -0.8%)
  • Prices of used cars and trucks declined 5.6% (vs -5.2%).

It appears the surge in prices is over with supply chains mostly healed. Services inflation is the directional key with consumer demand having shifted back toward services from goods.

Lower spending on goods, ongoing improvement in supply chains and falling shipping costs should continue to ease price pressures in coming months. The deflationary pull from improved supply chains will lessen with order now largely restored at US factories and ports. However, there are many possible shifts with the multiple geopolitical powder kegs out there with Russia and China.

A reminder we are coming off June 2022 9.1% inflation rate which was the highest in four decades. CPI has moderated after resurging in August with aggressive Fed interest rate rises.

The new data also reflects an update to the weights of goods and services in the spending basket to capture changes in consumer preference. The Labor Department previously updated every two years but starting with January’s release will revise them annually.

Services Inflation Peaked?

  • Services inflation in the United States eased for the sixth month to 5.70% year-on-year in July 2023, the lowest in over a year, from 5.74% in the prior month.
United States Services Inflation

Market Reaction (updated)

At Open:

  • Dow +444.05 at 35567.32, Nasdaq +211.95 at 13934.36, S&P +56.19 at 4525.17
  • Opened upbeat note after yesterday’s late sell-off. Mega cap stocks providing boost
  • Vanguard Mega Cap Growth ETF (MGK) is up 1.7%
  • Invesco S&P 500 Equal Weight ETF (RSP) is up 1.0%.
  • All 11 of the S&P 500 sectors are up ranging from 0.4% (utilities) to 1.7% (communication services).
  • Small and mid cap stocks are lagging their larger peers. The Russell 2000 is up 0.7% and the S&P Mid Cap 400 is up 0.7%

Treasuries exhibited some volatility immediately after the data, but yields quickly returned to levels seen ahead of the release.

  • The 10-yr note yield, which fell to 3.95%, is down two basis points to 3.99%.
  • The 2-yr note yield, which dropped to 4.73%, is down two basis points to 4.78% now.

Yields After CPI

  • 2-yr: -1 bp to 4.79%
  • 3-yr: -2 bps to 4.42%
  • 5-yr: UNCH at 4.13%
  • 10-yr: UNCH at 4.01%
  • 30-yr: +1 bp to 4.19%

Yields Before CPI

  • 2-yr: -1 bp to 4.79%
  • 3-yr: -3 bps to 4.41%
  • 5-yr: -1 bp to 4.12%
  • 10-yr: -2 bps to 3.99%
  • 30-yr: -2 bps to 4.16%

In forex the USD is lower on the back of lower yields.

Shelter Costs Adding to Homeless

Shelter costs, the biggest services’ component and make up about a third of the overall CPI index.

  • Shelter cost which accounts for over 30% of the total CPI basket, slowed for the first time in two years (8.1% vs 8.2%)
  • The index for shelter (+0.4%) was the largest contributor to the increase in total CPI and core-CPI; however, the 0.4% increase was the smallest increase for the shelter index since January 2022.

Rent Inflation

Owners’ equivalent rent (OER) component of CPI +7.7% year/year in July

Rent Inflation in the United States ticked down to a seven-month low of 7.7% in July 2023, from 7.8% in the prior month

Housing Utilities

United States CPI Housing
US CPI Housing Utilities

Food Inflation Persistently High, But Falling

United States Food Inflation
US CPI Food inflation

Food inflation in the United States fell to a near two-year low of 4.9% year-on-year in July 2023, from 5.7% in the prior month and a peak of 11.4% in August 2022. Prices slowed down for food at home (3.6% vs 4.7% in June) and food away from home (7.1% vs 7.7%).

Transportation Inflation Persists

United States CPI Transportation
US CPI Transportation Inflation

The effects of the coronavirus pandemic, then the supply crisis and throw in the Russian invasion of Ukraine on top have weighed on prices. Since many businesses closed and lockdowns were imposed, denting economic activity leaving the world vulnerable.  A jump in commodities and material costs, coupled with supply constraints pushed producer prices up and some companies are passing those costs to clients.

“I’m making more money…But I don’t see it because I’m paying more money for stuff now.” Low-wage workers are getting sharp raises. Inflation is eating them up. via Greg Ip WSJ

 Source: BLS BLS

From the Traders Community News Desk