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Inflation eases as U.S. consumer prices rose 8.5% in July

Yahoo Finance Live’s Brian Cheung breaks down July Consumer Price Index (CPI) data.

Video transcript

BRAD SMITH: All right, now, let's bring in Yahoo Finance's Brian Cheung and Brooke DiPalma to take a closer look at these numbers with us. Perhaps first and foremost, Brian, when we think about the headline number here and what we're seeing in parts of this with the Fed, because that's the big decision going forward from here, what rate hikes might still look like from the Fed. And Powell, we've already heard that his concern is whether or not the effects of the policy decisions had actually been ingested by the economy. Does this start to show us a little bit of that?

BRIAN CHEUNG: Yeah, but let's take a step back and just kind of unpack the report as a whole again. Inflation, not just in the eye of the Federal Reserve but in the eye of the American people, cooling when you compare it to the June report at 8.5% on a year over year basis. That's how much prices grew in America.

On a month over month basis, actually it was essentially unchanged, which yes, it's good, that might be cooling. But look, 8.5% is still very high. And even when you remove those more volatile components of prices in America, like for example, food and energy, what they call the core CPI, that number came in at 5.9% on a year over year basis. Low-- lower than the headline but still high. Although, keep in mind, the Street actually expected 6.1% on a year over year basis in the month of July.

Now, when we unpack what's going on here, one big reason for a cooler report compared to June is because of a decline in energy prices. So again, when you take a look, for example, at gasoline down 7.7%. Fuel oil down 11%. A big reversal of what we saw earlier in the year into the early parts of the summer. Food, we're gonna to talk about that in a second, up 1.1% still though. That probably matches what Americans are feeling at the grocery store.

But look, a lot of the reopening travel plays declining a lot. Hotels and motels down 3%. Airline fares down almost 8%. Car and truck rentals down 9.5%. But rent and mortgages, those starting to bleed through into inflation as well. Not a positive story on that front, up 0.6% on a month over month basis. That's a very sticky component of inflation.

Things that got cheaper-- major appliances, clothing. Things that got more expensive-- new vehicles and alcohol. So again, a mixed report overall. But still, important to note that it's a cooling from June. That might be good for the Fed. Does it knock them off the path of more rate hikes?