Consumer prices rose 0.1% in July and 1.7% from a year ago, with a matching rise in the core consumer price index, excluding food and energy, the Labor Department reported on Friday.
Wall Street expected both the headline and core CPI to rise 0.2% on the month and 1.8% from a year ago.
After the report, stocks futures turned higher, while the 10-year Treasury yield pointed slightly lower.
Investors haven't been so focused on inflation readings for a decade or more, as financial markets bet on just one rate hike over the next 12 months. That's a sharp contrast with Federal Reserve policymakers' expectation of four hikes by the end of 2018.
But doubts have crept in among more Fed committee members as the central bank's preferred personal consumption expenditures price index has shown an easing in inflation pressure, with the headline rate sliding from 2.2% in February to 1.4% in June, and core inflation easing to 1.4% from 1.9%.
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Part of the moderation reflects a leveling off of energy prices after a moderate rebound in 2016. However, subdued inflation pressure also reflects competitive pressures in a wide of array of industries, as companies discussed in recent earnings announcements.
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CVS Health (CVS) said this week that it saw flat same-store prescription volumes in the second quarter, but pharmacy same-store sales fell 2.8%, dragged down by recent generic introductions.
While drug pricing moderation from generic competition often comes in waves, this wave is likely to be more sustained amid the FDA's new plan to expedite review of generic drug applications.
"We're already seeing results, as May and June of this year have seen the most generic drug approvals since the FDA began tallying its monthly approvals," CVS CEO Larry Merlo said on an August 8 conference call.
Teva Pharmaceutical (TEVA) interim CEO Yitzhak Peterburg, in explaining the company's earnings miss to investors, cited the acceleration in drug approvals for "further increasing price erosion and decreasing volume and negatively impacting our overall business performance and outlook for the remainder of the year."
Shares of Marriott International (MAR) pulled back despite this week's earnings beat after CEO Arne Sorenson explained that the hotel group doesn't have as much ability to raise prices as it had in past cycles. While home-sharing via Airbnb has some impact on leisure travelers and business travel is pretty good, not great, he sees the bigger issue as "radical transparency in pricing."
"It's not particularly focused on home sharing or the disruptors in the space," Sorenson said on an earnings call. "It's much more about just the ubiquity of information. And I think with each passing year, it becomes simpler and simpler to know the rates at every single hotel."
Wendy's (WEN) After two years of resisting price increases, Wendy's raised prices a slim 1% in the quarter, even as it faces 4% wage inflation and higher commodity costs. Even with the price increase, margins at company-operated restaurants fell to 19.6% in the second quarter from 21.9% a year ago.
"Our biggest competitor is food at home," said CEO Todd Penegor, which helps explain why Wendy's has remained so conservative on pricing.
Over the past year, Labor Department data show that prices for food consumed at home have edged up 0.3%, the first annual year-over-year rise since late 2015, while prices for food away from home are up 2.1%.
Wal-Mart (WMT) has been engaged in a grocery-pricing war as it seeks to gain share from traditional rivals like Kroger (KR), fend off new low-price upstarts like Aldi and Lidl, and vie for retail dominance against Amazon.com (AMZN). The pending acquisition of Whole Foods Markets (WFM) by Amazon, which currently holds a tiny sliver of industry sales, means that no let-up on the pricing war is in sight.
Used-car prices could fall 6% this year and another 3% to 5% in 2018, LMC Automotive forecasts, as a wave of vehicles come off lease, saturating the market. The longer-term outlook also points to lower prices. Morgan Stanley says prices could fall by 20% to 50% over the next four years as a technology shift to electric and self-driving cars from Tesla (TSLA) and others sinks the trade-in value for today's models.
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