Additional evidence of tame inflation was provided a bit earlier this morning as the Labor Department reported that the nation's Consumer Price Index (CPI) was unchanged in July. Expectations had been that this metric would have risen by a modest 0.2%. This result was clearly better. 

What's more, if we back out the volatile food and energy components, to get the so-called core rate of CPI change, we find that this key number rose only 0.1% last month. That ended a run of four consecutive monthly increases of 0.2% in the core CPI. Contributing to the nominal core CPI gain was a 0.1% rise in food prices last month and a 0.3% decline in energy costs.

Individually, the indexes for medical care, tobacco, household furnishings, and apparel also rose, with only the last item up sharply, while the costs for airline fares, used cars and trucks, recreation, and new vehicles all declined. Used car prices fell sharply, falling by a full percentage point last month.

Also, the 12-month rise in the index for all items was 1.4% in July. This compared favorably with the 1.7% gain for the 12 months ended in June. This was the smallest 12-month change since November of 2010. The core CPI increase was 2.1%.

Taken as a whole, the CPI report was quite pleasing and suggests that the Federal Reserve will have plenty of latitude when it convenes its next FOMC meeting on September 12th and 13th. At that meeting, we expect the central bank to adopt further monetary stimulus moves--perhaps a QE3.  

At the time this article was written, the author did not have a position in any of the companies mentioned.