Interpreting the US CPI data for July And its impact on the world economy

Recently, the latest data released by the Department of Labor is like a clear mirror, vividly reflecting the operation of the US economy. The US consumer price index rose 0.2 per cent in July from a month earlier and 2.9 per cent from a year earlier. The figure marked the smallest year-on-year increase since March 2021 and appeared to be a positive sign of easing inflationary pressures. Delving deeper into the data set, the performance of July's core CPI, which strips out volatile food and energy prices, is equally striking. It rose 0.2 per cent month-on-month, 0.1 percentage points higher than in June. It was up 3.2% year-over-year, the lowest since April 2021.

Looking at the specific breakdown data, the details are rich and diverse. The food price index increased 0.2 per cent month-on-month and 2.2 per cent year-on-year, reflecting relatively stable prices in the food sector. The energy price index was unchanged from the previous month, up 1.1% year-on-year, but the oil price index was unchanged from the previous month, but down 2.2% year-on-year. The housing price index rose 0.4% month-on-month and 5.1% year-on-year, suggesting that there is still some upward pressure on prices in the housing sector. The new car price index decreased by 0.2% month-on-month and 1% year-on-year. The used car price index fell 2.3 percent month-on-month and 10.9 percent year-on-year, reflecting price fluctuations in the auto market to a certain extent.

The data came on the same day that US President Joe Biden struck an upbeat tone at the White House, declaring that the US had "defeated" inflation and the economy would achieve a "soft landing". Time will tell, however, whether this view will gain widespread acceptance. The US media conducted an in-depth analysis on this, and it is generally believed that the CPI data in July clearly indicates that inflation has further "cooled", not only that inflation has hit a new low in three years, but also that it is gradually approaching the 2% target set by the Federal Reserve.

Economists widely expect the Fed to start the process of cutting rates at its September meeting and continue it at subsequent meetings in November and December. Recalling the decision of the Federal Reserve on July 31, it announced that the target range of the federal funds rate remained unchanged at the level of 5.25% to 5.5%, which is the eighth consecutive maintenance of the interest rate range since September 2023, highlighting the cautious stance of the Federal Reserve in the adjustment of monetary policy. The CPI came in at 2.9% in July, largely in line with market expectations. In the complex constituent system of CPI, the weights of different sub-items are significantly different. Specifically, in the core CPI, the service-related component remains relatively sticky. There are two key components of the CPI, one is housing-related, which mainly covers actual rents and owners' equivalent rents. The sum of these two types of rent in the CPI basket weight of up to 36%, is undoubtedly the largest proportion of one, the price stickiness is still strong. The second is the medical service side, although the proportion in the CPI basket is about 6.5%, which is not a particularly large component, but the price stickiness can not be ignored.

Some securities institute research shows that the US CPI in July once again confirmed the trend of cooling inflation, opening the channel for the Federal Reserve to cut interest rates in September, and maintaining the Federal Reserve's forecast of two to three rate cuts within the year. The data, while supporting a quarter-point rate cut by the Federal Reserve in September, did not support a bigger cut. By the end of this year, the annual growth trend of wage and core inflation in the United States is expected to be relatively flat, rather than continuing to decline, and the Federal Reserve in September and December this year each cut 25BP is still the most likely path at present.

The July CPI data in the United States is like a key note in the economic movement, and its melody has triggered attention and interpretation from all sides. In the future, the direction of the US economy and the Federal Reserve's monetary policy decisions are still full of variables under the interweaving of many factors. This will not only affect the economic development of the United States itself, but also have a series of ripple effects on the world economy. First, the Fed's monetary policy changes have a direct impact on global capital flows. If the Fed cuts interest rates, the US dollar may weaken and funds may flow from the US to other countries and regions, thus changing the global asset allocation pattern and affecting the exchange rate stability and financial market stability of various countries. Second, the level of inflation and the direction of the US economy affect the pattern of global trade. If the U.S. economy slows, its demand for imports could fall, which would hit exports from other countries, especially those economies that rely heavily on the U.S. market. Moreover, monetary policy and economic conditions in the United States also have an impact on global capital markets. Changes in interest rates may lead to the reallocation of international capital between different markets, affecting the performance of capital markets such as stock and bond markets in various countries.

The US July CPI data and its subsequent impact will continue to attract global attention, and the world economy will continue to adjust and adapt to this series of changes.