The U.S. consumer price index fell to 3.4 percent annually in July, the lowest reading since early 2024, according to a report released by the Bureau of Labor Statistics on August 12. The S&P 500 rose 0.3 percent and gold gained 1.1 percent on the day, closing at $4,414.63 per ounce.
The monthly increase in the CPI was 0.1 percent, the smallest month-over-month gain in six months. Disinflation has been uneven since the Federal Reserve halted its rate-hike campaign last year, with price growth at the core level remaining sticky through the first half of 2026. The July reading brought the annual core measure, which excludes food and energy, to 3.3 percent, down from 3.5 percent in June.
Markets had priced in a wide range of outcomes ahead of the August data release. Some traders and investors anticipated the report could trigger a fresh debate over the timing of potential Fed rate cuts, though officials have indicated uncertainty about the necessity and pace of any moves. The modest S&P 500 move reflected modest conviction either way. Gold rose 1.1 percent.
Energy prices contributed significantly to the monthly disinflation. The gasoline index fell 1.9 percent in July, marking the largest monthly drop in two years. Food prices rose 0.2 percent on a monthly basis, moderating from earlier months when grocery costs had been a driver of overall price growth.
The shelter component, which includes rent and owner-equivalent rent, remained the largest contributor to the yearly increase. Housing inflation has decelerated this year but still accounts for about half of the overall annual CPI reading. Lagged rental data from earlier lease signings have begun to flow through to the CPI, a process that typically lags shifts in underlying market rents by 6 to 12 months.
The Fed's preferred inflation gauge, the personal consumption expenditures price index, is due for release in early September. That report will be the next major test of whether July's softening persists or reverses. Fed Chair Jerome Powell and other officials have said they need to see more evidence of progress on inflation before making decisions about the policy rate, particularly given labor market strength through July.
Equity markets had been volatile ahead of the CPI release, with investors uncertain whether a deceleration in price growth would be read by the Fed as reason to pause, cut, or hold steady. The S&P 500 finished up 0.3 percent on August 12, while the Nasdaq-100 posted a 0.7 percent gain. Gold rose 1.1 percent on the day while the S&P 500 rose 0.3 percent. The metric that determines the Fed's next move is whether core inflation, which stood at 3.3 percent annually, continues to trend toward the 2 percent target without further economic deterioration.
