The cost of living is still climbing, but the pace is slowing down.
That matched what economists on Wall Street were expecting.
Over the past 12 months, prices are up 3.4%. That is the overall inflation rate, and it includes everything from groceries to gas.
But if you strip out the stuff that bounces around a lot - we are looking at you, food and energy - core prices tell a slightly different story. Core CPI rose 0.2% in July and now sits at 2.5% on an annual basis.
All of these numbers hit the bullseye compared with what forecasters predicted. And when that happens, markets tend to react well.
Stock futures gained in the premarket session after the release. Treasury yields fell, which means bond prices rose. It was a classic risk-on move from investors who were bracing for worse.
The bond market does not usually get excited without a reason, but this time, it did.
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After the inflation report hit the wires, Treasury yields fell across the board. That might sound bad, but it is actually a sign of relief. When yields fall, it means bond prices are rising because investors are buying them up.
Why the positive reaction? Simple: no surprises.
For months, inflation has been the boogeyman that keeps showing up uninvited. Every time the data came in hot, the Fed had to raise rates higher or keep them higher for longer. That is bad for stocks and bonds alike.
But this time, the data was exactly in line. Not too hot, not too cold. Just right for a market that has been on edge.
The modest monthly figures suggest the earlier energy-driven price surge is easing. But volatility persists due to Middle East conditions, so while this report is good news, it is not the all-clear signal.
So what does all of this mean for your money?
First, the immediate takeaway is that the Fed's strategy appears to be working. The central bank has been raising interest rates to cool down the economy and bring inflation down to its 2% target. This report suggests that process is on track.
Second, lower inflation is generally good for bonds. When inflation expectations fall, bond prices tend to rise. That is a tailwind for fixed-income investors who have been burned by rising rates.
Third, stocks like certainty. And right now, the market is getting exactly what it expected. That is a welcome change from the volatility we have seen in recent months.
But let's not get ahead of ourselves. Inflation is still running above the Fed's target at 3.4%. The economy faces headwinds from global conflicts, supply chain issues, and a tight labor market.
The path down to 2% will likely be slow and bumpy. For investors, it means staying the course and not making big bets based on one month of data. The trend is your friend, and right now, the trend is pointing toward lower inflation.
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