Dow rises 68 points as CPI meets estimates, AI lifts stocks

The S&P 500 climbed 0.35% and the Dow gained 68 points after July CPI met estimates, reinforcing Fed rate-hold expectations.

"Inflation is wiping out wage gains for many," said Heather Long, chief economist at Navy Federal Credit Union.

The consumer price index rose 3.4% from a year ago in July, matching the consensus from economists polled by FactSet and easing from 3.5% in June. Core CPI, which strips out volatile food and energy categories, slowed to 2.5% annually from 2.6%. Energy prices jumped 14.7% year over year, driven by a 24.6% surge in gasoline costs as tensions in the Strait of Hormuz pushed Brent crude above $100 a barrel in late July. Shelter costs rose 0.1% month over month, accounting for roughly two-thirds of the monthly increase.

The in-line print reduces stagflation concerns and supports the case for the Federal Reserve to hold rates steady at its Sept. 16 meeting. The central bank will receive one more CPI reading — the August report due Sept. 11 — before deciding. Strong earnings and upbeat guidance from AI infrastructure companies added to the bullish tone, with technology shares leading the advance.

Wage growth continues to trail inflation, with average hourly earnings pacing at 3.2% annually in July, below the 3.4% CPI rate. "For middle-income and lower-income Americans, this is the key issue," Long said. "There will likely be some belt-tightening ahead."

Energy prices remain the primary driver of elevated inflation. Brent crude traded near $90 a barrel Wednesday morning, while U.S. crude approached $84. The national average for regular gasoline rose to $4.03 per gallon, according to the U.S. Energy Information Administration. Oil prices have eased from late-July peaks above $100 a barrel but remain well above pre-war levels of about $71.

"Today's CPI print, alongside July's drop in payrolls, should lower expectations for a September hike, but does not put it completely to bed," said Seema Shah, chief global strategist at Principal Asset Management. "Unless August's inflation print also shows subdued price pressures, a September hike is a clear risk."

The July jobs report showed employers cut 23,000 jobs, versus a forecast of 95,000 new hires, adding to the case for the Fed to remain on hold. Cleveland Fed President Beth Hammack has called for action, writing Tuesday that "the longer we wait to take action to bring inflation back to our 2 percent objective, the more challenging it will be."

Economists remain split on the Fed's next move. "Overall, this data supports our view that the Fed will remain on hold in the near term," said Mike Skordeles, head of U.S. economics at Truist.

This article is for informational purposes only and does not constitute investment advice.