Inflation Recedes and Stocks Soar: Is a Bull Rally Starting?

United States Inflation
  • The July CPI data was finally released, reflecting an annual increase of 8.5%, a better number than estimated.
  • This means that inflation not only fell 0.6% compared to June, but it was also a lower figure than in May.
  • By contrast, the core CPI, which excludes the report’s volatile food and energy components, grew 5.9% annually, the same as in June.
  • Gasoline fell 7.7% month-on-month, the biggest loss since April 2020.
  • Oil is in an area not seen since February of this year, as Brent is trading close to $96 a barrel.

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Inflation in the United States is beginning to decline and this is great news for investors. The Bureau of Labor Statistics published this Wednesday that the consumer price index (CPI) rose 8.5% annually in July, better than expected by analysts.

This means that inflation fell 0.6% compared to June and 0.1% compared to May. While economists estimated a jump of 8.7% in July data.

However, the core CPI, which excludes the report’s volatile food and energy components, grew 5.9% year over year, the same figure as in June.

One of the keys was the fall in gasoline prices, which collapsed 7.7% in July, the largest monthly loss since April 2020.

The news sent stock futures soaring on Wednesday. The S&P 500 rose 1.6%, the Dow Jones 1.2% and the Nasdaq 2.3%.

Housing costs, which account for about a third of the CPI’s weight, rose 5.7% from a year earlier.

These data could alleviate the pressure of the Fed which, after the CPI report in July, could start to slow down the increase in interest rates in September. This would cause a bullish rally in the stock market.