Insights 
VT 
The Atlanta Fed’s sticky-price consumer price index (CPI) increased by 4.6 percent on an annualised basis in July, compared to a 4.3 percent rise in June. Year-over-year, this series shows an increase of 3.4 percent.
Excluding food and energy, the core sticky-price index rose by 4.8 percent annually in July, maintaining a 3.4 percent rise over 12 months. In contrast, the flexible segment of the CPI fell by 3.8 percent in July annually, but still shows a 0.8 percent increase year-over-year.
Ongoing Inflationary Pressures
The sticky-price index reveals ongoing inflationary pressures, with upward trends monitored by economic policymakers. The changes in both sticky and flexible price indices indicate varying inflation behaviours within the economy.
We see that underlying inflation is proving stubborn, with sticky prices accelerating to a 4.6% annualized rate in July. This contrasts sharply with falling flexible prices, creating a complex picture for monetary policy. This suggests the fight against inflation is not over, despite some surface-level improvements.
The Federal Reserve will likely view the 4.8% annualized jump in core sticky prices with significant concern. This, combined with the recent July 2025 jobs report that showed nonfarm payrolls beating expectations at 215,000, builds a case for continued hawkishness. We expect policymakers to emphasize that this persistent inflation must fall before any policy easing is considered.
In response, interest rate markets are recalibrating expectations for future policy. The probability of another 25-basis-point rate hike in the September 2025 meeting has now climbed to over 40%, according to CME FedWatch data, up from just 15% two weeks ago. This indicates traders are shedding bets on imminent rate cuts and bracing for a higher-for-longer interest rate environment.
Historically Low Inflation Periods
We are reminded of the inflation surge in 2022, where similar stickiness in services inflation preceded a more aggressive stance from the Fed. That historical period showed that waiting for sticky inflation to fall on its own can lead to much sharper policy moves later. This lesson suggests we should not underestimate the Fed’s resolve this time around.
Given this outlook, we should consider strategies that benefit from sustained or rising short-term interest rates and increased market volatility. Options on interest rate futures, such as those tied to SOFR, could be useful tools to position for a hawkish Fed. Volatility indexes may also see upward pressure as this policy uncertainty grows in the coming weeks.
