The numbers: The consumer price index climbed 0.5% in July, the Labor Department said Tuesday.

Economists polled by The Wall Street Journal had estimated a 0.5% advance. That’s down from a 0.9% gain in June.

The rate of inflation in the 12 months ended in July remained at 5.4% for the second straight month, a 20-year high.

However, the closely watched measure of inflation that omits volatile food and energy rose 0.3%, below expectations of a 0.4% gain. It’s down from solid gains in the last three months. As a result, the 12-month rate decelerated to 4.3% from 4.5%, which was a 29-year high.

Key details: A key driver in the moderation of core CPI was used car prices, which rose 0.2% after surging 30% from March – June.

Energy prices rose 1.6% in July after a 1.5% gain in the prior month. Food prices moderated slightly, rising 0.7% after a 0.8% gain in June. Owners equivalent rent, a measure of housing, rose 0.3%.

Big picture: Federal Reserve officials are remaining patient and view the surprising surge of inflation as “largely transitory.” Most economists seem to agree but there is a lot of uncertainty.

Other economists are quick to note how high inflation actually is. Last year, the headline CPI was running 1% year-on-year while the core was running at a 1.6% annual rate.

Some Fed officials are pressing for the central bank to announce in September that it will begin to slow down bond buying later in the fall.

What are they saying? “The July inflation report appears to give a little something to both the hawks and the doves within the Fed. Those focused on the level of inflation will likely see this as an indication that the case for tapering is increasingly clear, particularly given the state of the labor market and expectations for strong payroll gains in the near term. Conversely, doves in the Fed may focus on indications that the pace of price increases may be topping out with the potential to ease in the coming months.  If inflation is starting to ease on its own, how urgently does the central bank need to take action?” said Jim Baird, chief investment officer for Plante Moran Financial Advisors.

Market reaction: Stocks were higher in early trading with the

up 206 points after the release of the CPI data. The yield on the 10-year Treasury note

remained relatively steady at 1.366%.

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