In July, the annual inflation rate decreased to 2.9%, marking the lowest rate since 2021.

The Labor Department report on Wednesday revealed that inflation in July increased as anticipated, due to rising housing-related expenses. This is likely to keep an interest rate reduction in September.

The consumer price index, a comprehensive indicator of the cost of goods and services, rose 0.2% in the month, resulting in a 12-month inflation rate of 2.9%. According to a survey by Dow Jones, economists had predicted respective readings of 0.2% and 3%.

The core CPI increased by 0.2% monthly and 3.2% annually, as expected.

Since March 2021, the annual rate has been the lowest, and since April 2021, the core has been the lowest, according to the Bureau of Labor Statistics report. The headline inflation rate was 3% in June.

The increase in shelter costs by 0.4% led to 90% of the overall inflation increase, while food prices rose by 0.2% and energy remained unchanged.

After the report, Treasury yields were mostly higher, resulting in mildly negative stock market futures.

Despite a slight decrease in food inflation, several categories experienced significant increases, with eggs seeing the most substantial rise at 5.5%. On the other hand, cereals and bakery items dropped by 0.5%, and dairy and related products experienced a slight decline of 0.2%.

The central bank's 2% target for inflation has been gradually approached, as shown by a report from the Labor Department on Tuesday. According to the report, producer prices, which serve as a proxy for wholesale inflation, rose by only 0.1% in July and increased by 2.2% year over year.

Officials from the government have shown a readiness to relax, but they have been cautious not to make a specific timeline or speculate about the speed at which cuts may occur. Futures market pricing suggests that there is a 50/50 chance of a quarter- or half-percentage point reduction at the Sept. 17-18 meeting and at least a full point in cuts by the end of 2024.

With inflation decreasing, there is a growing belief that the Fed may begin reducing interest rates for the first time since the start of the Covid pandemic, due to concerns about a sluggish job market.

"Liz Ann Sonders, chief investment strategist at Charles Schwab, stated that the CPI report shows that the sticky areas remain sticky, and it is crucial to closely monitor both inflation and employment data."

Some areas are experiencing persistent inflation, as indicated by several crosscurrents in the report.

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