The U.S. consumer price index grew at an annual pace of 3.2 percent last month, a slight rise from June’s 3.0 percent but still lower than many analysts had forecast.

Core inflation, which ignores energy and food prices, ran at 4.7 percent last month, year over year, slowing from July and reaching its slowest rate since October 2021.

The numbers are “better than we were expecting,” Eugenio Aleman, Raymond James chief economist, told CNBC. However, “shelter costs continue to remain strong.”

Most of the 0.2-percent pick-up in July was due to the cost of housing, which grew 0.4 percent from June and 7.7 percent, year on year.

“We’ve been expecting shelter costs to weaken considerably but that hasn’t happened,” Aleman noted.

Food costs rose 0.2 percent in July from June and energy prices were up 0.1 percent, despite gains in the price of oil. (See “Oil Prices Climb as Inflation Slows and Supplies Tighten” 8 Aug 2023.)

Used car prices were down 1.3 percent and the price of medical services dropped 0.4 percent.

However, because oil prices are continuing to rise toward $100, August’s inflation report “probably won’t look good unless shelter costs start plunging,” according to Aleman.

Inflation’s rate was 8.5 percent in July 2022 after peaking at 9.1 percent in June 2022 but many Americans have yet to feel that impact. 

The reason: “it’s hit hardest and most consistently in categories that are necessities,” such as food and fuel, Greg McBride, Bankrate.com’s chief analyst, told CNBC. “There really hasn’t been anywhere to hide.”

The new data increased investors’ hopes that the U.S. Federal Reserve will not increase its key interest rates again when it meets next month. On 10 August, interest-rate futures traders had pegged the likelihood of a pause at 91 percent.

TRENDPOST: With inflation preying relentlessly on the things people need and use most, and with interest rates at their highest in 20 years, people have had to tap their savings and load their credit cards, as we noted yet again in “Inflation Ticks Up in July” in this issue.

For the first time, credit cards’ unpaid balances have topped $1 trillion, as we reported in “Americans Sinking Into Debt” (8 August 2023).  

At the end of July, the U.S. savings rate had fallen to 4.3 percent, after reaching higher than 14 percent during the COVID War. Now, those lockdown-era savings have largely been spent.

When American consumers run out of ways to spend on all but the basics, and they are close to that point now, the economy will dip into a recession.