The latest data from the U.S. Consumer Price Index reveals a mild increase of 0.2% in July. However, the rate of inflation has risen for the first time in over a year, indicating that managing the cost of living will take some time.

Economists surveyed by the Wall Street Journal had predicted a 0.2% increase in the consumer price index.

In comparison to the previous month, the annual rate of inflation rose from 3% to 3.2%. This marks the first increase in 13 months.

Excluding volatile food and energy costs, the core rate of inflation also rose by 0.2%.

Over the past year, the increase in core inflation has slowed slightly to 4.7%, which is the lowest rate in almost two years.

While the Federal Reserve considers food and energy prices, it views the core rate as a more reliable indicator of inflation trends. However, the core rate remains significantly above the Fed's target of 2%.

The central bank has been gradually raising U.S. interest rates to curb economic growth and control inflation. The upcoming CPI report is unlikely to influence the Fed's decision on whether to raise rates further at its next meeting in September.

Challenges Ahead for Inflation

Although inflation has significantly slowed in the first half of 2023, future progress is expected to be challenging.

Gas prices are increasing again, while rent and house prices continue to rise. Additionally, labor costs are growing at a rate of over 4% per year, presenting obstacles for the Fed in achieving its inflation target.

Meanwhile, the U.S. economy continues to expand at an unexpectedly strong pace. The high consumer demand may keep prices elevated, particularly for popular services like hotel rentals, dining out, and entertainment.

The question of whether inflation is still rising too rapidly for the Fed to warrant another rate hike in September remains unanswered at this time.

Market Outlook

Before the release of the CPI report, the Dow Jones Industrial Average (DJIA) and S&P 500 were expected to open higher in Thursday trades. The yield on the 10-year Treasury note remained relatively flat at 3.97%.

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