US July Inflation Rises by Softer 2.7%

Key points:

• Headline CPI rose 2.7% year-on-year, slightly below expectations

• Core CPI increased 3.1%, higher than forecast

• Bitcoin edged higher to just under $119,000 following the release

Inflation data from the United States for July presented a mixed picture, with headline figures coming in softer than anticipated, while the core rate rose more than economists had hoped.

According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 0.2% month-on-month, matching forecasts and easing slightly from June’s 0.3% increase.

On a year-on-year basis, CPI rose 2.7%, slightly below the expected 2.8% and matching the prior month’s reading.

However, core CPI—which excludes volatile food and energy prices—rose 0.3% on the month, in line with expectations but up from June’s 0.2%. On an annual basis, core inflation came in at 3.1%, surpassing forecasts of 3.0% and June’s 2.9%.

Impact on Markets and Rate Expectations

The figures are not drastically off from expectations and are unlikely to significantly change market assumptions regarding the US Federal Reserve's next move. Prior to the data release, CME FedWatch placed the probability of a rate cut in September at 84%. Within 15 minutes of the release, that figure had risen to 90%, suggesting traders still view a rate reduction as likely.

Bitcoin and Market Reaction

In anticipation of the data, Bitcoin (BTC) was trading around $118,500, with some traders hedging downside risk using short-dated put options. Following the release, BTC rose modestly to just below $119,000.

Traditional financial markets responded positively to the softer headline inflation. US stock index futures climbed, with the Nasdaq 100 and S&P 500 each rising approximately 0.6%. Meanwhile, the US dollar weakened slightly, and the yield on the 10-year Treasury fell three basis points to 4.26%.