Dow and S&P 500 Surge After July Report Shows Inflation Rose Less Than Expected

Core CPI rose 0.3% in July, significantly less than June’s increase of 0.9%.

The Dow and S&P 500 jumped to new intraday records on Aug. 11, as the Bureau of Labor Statistics’ (BLS) Consumer Price Index (CPI) release showed prices rose less than expected in July. The seasonally adjusted CPI posted an increase of 0.5% in July, after rising 0.9% in June. 

Core CPI, which excludes more volatile food and energy prices, rose 0.3%. The figure was just below forecasts of 0.4%, compared to 0.9% in June, and reflected modest price increases in most categories aside from food and energy.

Key Takeaways

  • The BLS report shows CPI advanced 0.5% between June and July, slightly less than economists had forecasted. 
  • Food away from home prices posted the greatest increase in nearly four decades at 0.8%, as takeout meals increased 1%. 
  • Secondhand vehicle prices cooled, increasing 1.7% after three consecutive months of gains above 7.3%. 

Prices of energy and energy services drove the increase in overall monthly CPI, as gas grew the most at 2.4%, followed by gas services at 2.2% and new vehicles at 1.7%.

Secondhand Vehicle Prices Cool

After rising more than 7.3% in April, May and June, the index for used vehicles rose just 0.2% in July. Vehicle insurance prices fell 2.8% in July, one of the few measures that decreased, breaking its six month streak. Transportation services experienced the greatest decline, falling 1.1% in July after four months of solid gains. Airfares also fell, contracting 0.1% after rising sharply over the past few months. 

Costs of Dining Out Post Greatest Jump in Four Decades

Shelter and food prices climbed, though to a lesser extent. Food prices swelled 0.7% and shelter rose 0.4%. In June, food and shelter had risen 0.8% and 0.5%, respectively. Food away from home increased more than groceries or food at home, at 0.8% compared to 0.7%, in the largest monthly increase for food away from home since 1981. Most of the surge was driven by takeout and self-service meals, with limited service meals rising 1%. Within the grocery foods category, cereal and bakery items saw the greatest jump, while the fresh fruits and vegetable index actually fell, declining 0.9% after rising 0.7% in June.

Annual Rate Unchanged From June Highs

The overall index’s annual rate did not change with July’s release, as overall CPI rose 5.4% year-over-year, the same as it did in June, which represented the highest year-over-year jump since August 2008. Energy prices and secondhand vehicles continued to lead gains over the longer term, with gas prices increasing 41.8%, used vehicles rising 41.7%, and utility gas services growing 19% year-over-year. Most other categories posted increases in the single digits. 

Eased Concerns

The news eased concerns the Federal Reserve might need to pull back on its efforts to stimulate the economy to blunt rising prices, leading investors to buy stocks and sell off bonds, pushing the Dow and S&P 500 to intraday record highs. Fed Chair Jerome Powell maintains that spiking inflation is transitory in nature, but said in a press conference in July that he is uncertain when inflation would begin to fall.

Additional reporting by Bill McColl.

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