Inflation is expected to cool again in today's July CPI report

The Bureau of Labor Statistics is set to release new data on consumer prices at 8:30 a.m. ET today. Economists anticipate a slight decrease in inflation for July, as wage growth continues to trail behind. Another CPI report is expected before the Federal Reserve convenes to discuss interest rates.

Inflation decelerated to 3.5% in June, the lowest since March and lower than the forecasted 3.8%. Forecasts for July suggest a modest decline to 3.4%. Factors contributing to this moderation include an increase in rental vacancies that have limited rent growth, reduced tariffs, and slower wage increases, according to J.P. Morgan Asset Management's chief global strategist David Kelly.

However, the rate of inflation's decline hinges on the recovery of traffic through the Strait of Hormuz. A critical point of comparison is whether inflation outpaced wage growth for a fourth consecutive month. In July, wage growth slowed to 3.2%, the lowest rate since 2021.

Even though earnings may increase, the rising prices leave people with less disposable income, as emphasized by ZipRecruiter economist Nicole Bachaud. This trend significantly affects middle- and low-income households that heavily rely on wage growth to maintain economic viability.

The energy sector, particularly oil prices, will be a focal point of the new report due to ongoing tensions in Iran and their impact on the oil market. June saw a year-over-year rate of 15.7% for the energy price index, down from a 23.5% peak in May.

Recent economic data, including a disappointing jobs report and revised revisions indicating fewer job creations, suggest that employers may not be aggressively recruiting workers due to a lack of urgency. Instead, companies might be focusing more on providing health benefits than wage hikes.

The Federal Open Market Committee is expected to meet in mid-September to decide on interest rates. Currently, there is a roughly 50-50 chance of a rate hike or a rate hold, based on traders' expectations on the CME FedWatch tool. This story is still developing; please stay tuned for further updates.