Inflation Trends - The core CPI in the US rose by 0.1 percentage points to 3.0% year-on-year in July, with a month-on-month increase of 0.32%, marking the second-highest rise since April 2024[3] - Core durable goods prices increased significantly by 0.36% month-on-month, while energy prices fell by 1.07%, indicating the impact of elevated tariff rates on goods inflation[4] - The labor market's cooling has not significantly affected inflation, as average hourly wages rebounded, sustaining the wage inflation spiral[4] Federal Reserve Policy Implications - The strong rebound in core inflation may limit the Federal Reserve's ability to cut interest rates, as maintaining a long-term inflation target of 2% becomes challenging[5] - The ongoing high tariff rates, ranging from 10% to 41%, are expected to further influence the core CPI in the coming months as trade agreements are finalized[5] - The anticipated effects of large-scale tax cuts for residents and businesses have yet to materialize, suggesting that inflationary pressures may persist[5] Economic Outlook - The current economic cycle is likely to remain heated, with potential upward pressure on core inflation due to a tighter labor market and rising wage growth[5] - The divergence in monetary policy among major developed economies may lead to a rebound in the US dollar index as it adjusts to real interest rate differentials[5] - Risks include the possibility that the Federal Reserve's interest rate cuts may not meet expectations, which could constrain monetary easing in other countries[6]

Employment Data - In July, the U.S. added only 73,000 non-farm jobs, significantly lower than expected, with previous months' job additions revised down to 19,000 and 14,000 for May and June respectively, indicating a downward adjustment of 86,000 jobs[3] - The average unemployment rate increased by 0.1 percentage points to 4.2% in July, reversing a slight decline in June[3] Labor Market Dynamics - The labor force participation rate fell for the third consecutive month, down 0.1 percentage points to 62.2%, the lowest since December 2022, reflecting a decrease in potential labor supply due to strict immigration controls[4] - Average hourly earnings rose by 0.1 percentage points to 3.9% year-on-year, following three months of stagnation, indicating upward pressure on wages[4] Economic Implications - The labor market's current cooling trend is expected to be temporary, with potential recovery as fiscal expansion measures are implemented, which may lead to increased job creation and higher incomes[4] - The "Big and Beautiful Act" is anticipated to provide significant tax incentives for domestic investment, potentially leading to a rebound in the labor market and upward pressure on inflation[4] Market Reactions - Following the employment data release, the U.S. dollar index fell sharply by 1.38% to 98.69, reflecting market concerns over the labor market's performance[3] - The overall structure of job additions in July suggests a prolonged process for the return of advanced industry chains to the U.S., with tariffs having a notable impact on domestic manufacturing[3]

1. Report Industry Investment Rating No relevant content provided. 2. Core View of the Report - The significant decline in the US CPI data in March 2025 has strengthened the market's expectation of a Fed rate cut in June, with an expected annual rate cut of up to 100 basis points. However, geopolitical conflicts and tariff policies may push up inflation, forcing the Fed into a dilemma between rate cuts and inflation control, and even delaying the easing cycle [3][26][27]. - The labor market is showing marginal cooling, with strong employment but weakening wage pressure, which provides policy flexibility for the Fed. Asset trends are complex and differentiated, reflecting the market's game between rate - cut expectations and inflation rebound risks [4]. - Although the overall US inflation is cooling, the inflation structure shows that commodity inflation is deflationary while service inflation is sticky. If tariffs are fully implemented, inflation may rebound [17][26][27]. 3. Summary by Relevant Catalog 3.1 CPI vs Core CPI - In March 2025, the US CPI increased by 2.4% year - on - year and decreased by 0.1% month - on - month, the first negative growth since 2020. The core CPI dropped to 2.8%, the lowest since March 2021, indicating a phased relief of overall inflation pressure [10]. - The decline in CPI is mainly due to the fall in energy prices, while the core CPI still shows certain stickiness, especially in service costs and housing rents. Short - term CPI decline may stimulate rate - cut expectations, but there are still risks of inflation rebound [10]. 3.2 Commodity - type Inflation vs Service - type Inflation - In March 2025, the overall US inflation was moderately cooling, but from a structural perspective, commodity prices were almost flat, with a significant decline in energy prices, while service - type CPI still increased by 3.7% year - on - year. Housing - related items were an important source of core CPI stickiness [17]. - Trump's tariff policy adjustment may cause US commodity inflation to rise again in the coming months, while service - type inflation declines more slowly due to structural factors. The current structure of commodity deflation and service inflation still exists, and inflation may face upward risks [17]. 3.3 Impact of Inflation - The decline in the US CPI data in March has strengthened the market's expectation of a Fed rate cut in June. However, if tariffs are fully implemented, it may push up inflation and force the Fed into a dilemma [26][27]. - Geopolitical conflicts and tariff policies increase the risk of inflation rebound. The Fed may need to carefully balance between "fighting inflation" and "preventing recession", and the policy - turning window is narrowing due to external uncertainties [27].