Inflation came in perfectly on forecast. Almost everything underneath it is a ‘mess’ as wages struggle to keep up

A tense July inflation report came in exactly as economists expected it would on Wednesday, as the Bureau of Labor Statistics reported that consumer prices rose 0.1% in July and 3.4% over the past 12 months.Core CPI, which takes out food and energy, rose 0.2% on the month and 2.5% on the year, the slowest annual pace since the post-pandemic surge.

The summer has provided relief to Spring’s energy shock. The energy index dropped 1.5% in July after a 5.7% decline in June, with gasoline down 2.9% for the month. Yet energy prices remain 14.7% higher than a year ago, and gasoline 24.6% higher after a war with Iran shut down the Strait of Hormuz.

Markets took the report as a relief. Stock futures rose after the release, and traders decreased the odds of a Fed hike next month to under 50%. The 10-year Treasury yield held near 4.66%.

“In-line inflation will keep the ‘no need to hike rates’ narrative that took hold after last week’s jobs report intact,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. “There will be another round of inflation data........

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