The July CPI came out to be another soft report and points to further moderation in inflation. Headline CPI increased by 0.2% MoM (0.167% unrounded), which resulted in the YoY rate increasing two-tenths to 3.2% as base effects were less favorable than last month.

For core inflation, the print came in at 0.16% MoM (0.2% rounded) increase, which results in the YoY rate declining by a tenth to 4.7%, it’s lowest level since October 2021. Summary of the most recent CPI results vs. expectations:



Shelter inflation continues to soften gradually but likely takes a while to realize the full extent of its decline due to catch up effects. Energy strength didn’t show up in the way we expected so we think headline CPI will be firmer next month. Looking into the back half, tight oil supply and wide ‘crack’ spreads point to significant gasoline price inflation later this year, further amplifying near-term risks to headline inflation.


Source: Stifel as of 08.10.2023


The Fed (and market) will be pleased to see only a modest rise in prices for the second straight month. The bottom line is 3-month and 6-month annualized rates for core inflation still stand at 3.1% and 4.1%. Headed in the right direction yet still well above the 2% target. In addition, the base effect will no longer provide an easy path to lower inflation as it has for most of the past year. It’s too soon to declare victory that the Fed has tamed inflation without sending the economy into a recession.


Component Details


Source: Citadel as of 08.10.2023


  • OER ticked up to 0.49% which was a surprise
  • Used cars were only down 1.3% so not as consensus expectations
  • Airfares were down big, -8%
  • Insurance at 2% 
  • Food at home rebounded to 1.1% after falling -0.7% previous



Final Thoughts


As the chart above shows, food, energy, and goods’ contributions to headline CPI are already back to their historical norms. Those categories have contributed to the decline in inflation for about as much as they can. In addition, gas prices have risen significantly so far in August, and we can expect that category will work against further declines.

The bottom line is that any meaningful decline from here in inflation will need to come from services ex-energy, which are still contributing more than their historical norm to headline inflation. Breaking down the main component of services ex-energy inflation, the overwhelming majority boils down to shelter prices. Until housing prices come down considerably, inflation likely will remain elevated.




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