A tense July inflation report came in exactly as economists expected it would on Wednesday, as the Bureau of Labor Statistics reported that consumer prices rose 0.1% in July and 3.4% over the past 12 months.

Core CPI, which takes out food and energy, rose 0.2% on the month and 2.5% on the year, the slowest annual pace since the post-pandemic surge.  
  
The summer has provided relief to Spring’s energy shock. The energy index dropped 1.5% in July after a 5.7% decline in June, with gasoline down 2.9% for the month. Yet energy prices remain 14.7% higher than a year ago, and gasoline 24.6% higher after a war with Iran shut down the Strait of Hormuz.  
  
Markets took the report as a relief. Stock futures rose after the release, and traders decreased the odds of a Fed hike next month to under 50%. The 10-year Treasury yield held near 4.66%.  
  
“In-line inflation will keep the ‘no need to hike rates’ narrative that took hold after last week’s jobs report intact,” said Ellen Zentner, chief economic strategist for [Morgan Stanley](https://fortune.com/company/morgan-stanley/) Wealth Management. “There will be another round of inflation data before the September FOMC meeting, so the storyline could still change. But unless those numbers tell a much different story, the Fed will likely still be in a position to leave rates unchanged next month.”  
  
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Inflation came in perfectly on forecast. Almost everything underneath it is a ‘mess’