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U.S. Consumer Price Index (CPI) monthly changes from July 2024 to July 2025, as reported by the Department of Labor. / Source: U.S. Department of Labor

Consumer prices in the United States rose at a steady pace in July, boosting expectations that the Federal Reserve will lower interest rates next month.

The Labor Department said on August 12 that the Consumer Price Index (CPI) rose 2.7 percent in July from a year earlier, matching June’s pace. While it marked a 0.2 percent increase from May, it came in 0.1 percentage point lower than the 2.8 percent forecast by economists surveyed by Dow Jones.

Excluding volatile food and energy prices, core CPI climbed 3.1 percent year-on-year and 0.3 percent month-on-month. The annual core reading was the highest in five months, exceeding the 3.0 percent forecast.

The Wall Street Journal noted that declines or stabilization in prices for key household expenses such as housing, energy, and food helped keep overall inflation in check. Energy prices fell 1.1 percent from the previous month, food prices were flat, and rent increases slowed.

Following the report, U.S. stock futures jumped, with major New York Stock Exchange indexes maintaining gains of more than 1 percent. The data reassured investors by showing no unexpected rebound in inflation.

The 10-year Treasury yield rose 2 basis points to 4.293 percent, while the 2-year yield — more sensitive to monetary policy — fell 2.1 basis points to 3.733 percent.

According to the CME FedWatch Tool, markets now see a 94.4 percent probability that the Fed will cut rates by 0.25 percentage point at its September policy meeting, up 8.5 percentage points from the previous day.

Analysts said the steady inflation reading suggests that earlier fears about large tariff hikes under President Donald Trump fueling a sustained rebound in prices have not materialized, as cost pressures have been dispersed through supply chains.