Digging deeper into this report, the rent component rose by 0.7% and is now up 6.3% year over year. Energy prices fell 4.6% for the month of July, but are still up 33% from a year ago. Gasoline prices fell 7.7% and are up 44% year over year. Used cars fell by 0.4%, but like the majority of the other sectors, they are still up year over year showing a 6.6% increase. Food costs continued to rise in price and are now up another 1.1% in July, bringing the annual gain to around 11%.
Once this inflation report was released, bond prices increased slightly which caused mortgage rates to improve incrementally mid-week. The bond market and interest rates hold an inverse relationship. When bonds increase in price, mortgage rates drop and vice versa.
Also, because this CPI report showed a cooling of inflation, the Fed is now taking a second look at their next move. Analysts were thinking that the Fed might hike rates again at their September meeting by another 75 basis points, but after this latest CPI release some were saying it might only be 50 basis points now. There is one more CPI report that is due for release before the Fed’s next meeting. How that breaks down inflation can certainly sway the Fed’s next rate hike decision.