Lower energy prices continue to keep inflation tame. In July, the Consumer Price Index (CPI) ticked higher for the sixth consecutive month, but only by 0.1% on the headline CPI reading. Dow Jones and Bloomberg were both expecting a gain of 0.2% on the seasonally adjusted reading. The core-CPI, which excludes food and energy, came in with identical 0.1% gain, versus the Bloomberg consensus reading of 0.2%.

The year-over-year report is where things get interesting, because this is the annualized inflation reading. Recall that the Federal Reserve wants inflation to be up at a 2.0% to 2.5% range. On an annual basis, the headline CPI was up only 0.2%. To prove that energy matters, the core CPI, outside of food and energy, was up by 1.8%.

July’s gain was by rising shelter costs, homes and apartments, up by 0.4% on the base reading but up 3.1% from a year ago.

The 0.9% rise in gasoline prices may be tied to that summer rotation, but gasoline prices at the pump are actually down a whopping 22.3% from a year ago. Food prices were up 0.2% on a monthly basis, but they were up 1.6% from a year earlier.

On top of lower oil and energy prices from a year ago, the reality is that the strong dollar is another deflationary component here in America that is not felt elsewhere.

Many market participants are still expecting Janet Yellen and the Federal Reserve to raise interest rates in September. The Fed would sure like some inflation to give it some cover for those rate hikes. Unfortunately, they may have to raise rates without it.

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