Inflation: What July’s CPI data means for the Fed

Yahoo Finance Live’s Brian Cheung explains July Consumer Price Index (CPI) data and what the report means for the Fed moving forward.

Video Transcript

BRIAN SOZZI: I do want to mention eggs, though. Because you know, who's getting hurt by eggs? That is Dine Brands. They are-- they own IHOP. They serve a lot of omelets. Dime Brands CEO John Peyton told me yesterday, commodities in the second quarter are up over 20%. That is a big increase for a chain like that.

But Brian, I want to go back to a point that you made because we're seeing futures really rip higher here, under this notion, perhaps, maybe the Fed pulls back on rate hikes. But look, inflation up 8.5%. The Fed's target for inflation, what, 2%?

BRIAN CHEUNG: Yes.

BRIAN SOZZI: They're still going to move forward on rate hikes.

BRIAN CHEUNG: And that's the important thing to remember here, right? This is the first inflation report that we've gotten in a while that shows a decline in the year-over-year gains that we're seeing. So we're talking about a rate of increase getting slower. This is not the same thing as prices falling.

BRIAN SOZZI: And not deflation.

BRIAN CHEUNG: And not deflation, right? But again, 8.5%, that's a notch that-- this is a great chart. It's a notch down from June. But we're still way far away from the 2% target that the Fed would like to see prices increasing at. So it doesn't change the overall story, which is the Fed needs to continue to try to raise interest rates to lower the demand, to take some steam out of an economy that is partly contributing to the higher prices.

But a tough challenge for the Fed when the other factors that are leading to these price increases for-- let's say, for example, commodities is the war in Ukraine, or for eggs, for example, weather-related things or the bird flu. That was a big factor for chickens early on in the year. So those are things the Fed obviously can't control.

But look, they have said they need to continue to raise interest rates. You have some Fed officials, like Jim Bullard, saying they've got to get to 4%. That implies at least another, you know, 100-plus basis points in terms of hikes throughout the rest of this year. That doesn't stop the story.

But you're right, maybe markets are taking a little bit of solace and saying, well, the Fed, especially after that hot labor market report we got last Friday, doesn't have to go 75 or maybe even 100 basis points in the next meeting. But of course, there's gonna be another CPI report and another jobs report before the next policy setting meeting in September.

BRAD SMITH: All right, Yahoo Finance's own Brian Cheung and Brooke DiPalma helping us get a little bit more context and color around today's CPI--