The core consumer price index came in a bit hotter than expected in July, as part of the cost of Trump tariffs was passed on to shoppers. But S&P 500 futures turned higher after the CPI data as markets weighed the impact on Federal Reserve rate cuts.
Wall Street expected the impact of Trump tariffs to be a bit more mild in July, after CPI inflation data for June showed a 0.5% jump in core goods prices, excluding autos, which was the biggest increase in two years. Intel (INTC) is leading the S&P 500 early Tuesday after CEO Lip-Bu Tan got a vote of confidence from President Trump.
The overall CPI rose 0.2% in July, in line with 0.2% forecasts. The 12-month headline inflation rate held at 2.7%, which was below 2.8% forecasts.
The core CPI, which excludes volatile food and energy prices, rose 0.3%, matching forecasts. However, the 12-month core inflation rate rose to 3.1%, above 3% estimates.
A surge in imports before Trump tariffs took effect delayed the need for retailers to hike prices. While price hikes showed up in the June data, with a 1.8% monthly rise in prices for sports equipment and 1.8% bump in toy prices, services inflation has been pretty tame.
Hotel and motel room rates fell 3.7% from a year ago in June, while airline fares have slipped 0.7% over the past 12 months.
Pantheon Macroeconomics noted that Adobe's Digital Price Index data points to "a slowing pass-through from the tariffs to consumer prices" in July, though the economists aren't fully buying it.
Used car prices are something of a wild card, after falling 0.7% in June. Both Manheim and JD Power data suggest higher used car prices in July data.
Ahead of the CPI data, markets are pricing in 82% odds of a rate cut at the Sept. 17 meeting. Following sharp downward revisions to job gains for May and June, markets now see a strong likelihood of at least 50 basis points in rate cuts this year (85%), with a decent chance of 75 basis points in cuts (42%).
S&P 500 futures are near the flat line in early Tuesday stock market action. On Monday, the S&P 500 dipped 0.25%, ending just 0.8% below its July 28 record closing high. Intel stock rose 3%.
The S&P 500 has climbed 7.8% for the year and 9.6% since Election Day.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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