Inflation may finally be cooling, thanks to falling gasoline prices and fading supply chain issues. Economists expect July's consumer price index rose 0.2%, down from 1.3% in June. Investors are watching the CPI for clues at to how much the Fed might raise interest rates at its September meeting.

Consumer inflation in July is expected to fall to 8.7%, down from June's 9.1%. Investors are also closely watching the report for clues as to how aggressive the Federal Reserve might be in raising interest rates. "You have about four drivers of inflation right now," says Aneta Markowska, chief economist at Jefferies.

Excluding energy and food, CPI is expected to rise by 0.5% in July. Core CPI is still expected to be higher than June on a year-over-year basis. "Everyone is primed for reasonably good news, so it's got to be good news," Mark Zandi says.

Consumer and market expectations for inflation are falling. Zandi: "I think the 9.1% inflation rate we suffered in June will be the peak" Consumers expected inflation to run at a 6.2% pace over the next year, survey shows. That is a big decline from 6.8% and 3.6% results in a June survey.

Bond market metrics for inflation show that investors see a slower pace of inflation than they did just a couple of months ago. The 10-year breakeven is now 2.50%, down from a high of 3.07% earlier this year. That means that market participants now expect a rate of inflation that averages 2. 50% annually over the next 10 years.
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