Encouraging inflation data keep Wall Street mostly in the green

The S&P 500 briefly touched 7,800 points as inflation continues to cool and investors keep hoping that the Federal Reserve won’t hike interest rates.MANHATTAN (CN) — Without any concrete information on the Iran war, investors are eyeing key inflation reports, which has helped bolster equities.Markets edged up and down throughout the week, with the Dow Jones Industrial Average dropping 304 points by Friday’s closing bell, the S&P 500 gaining 28 points, and the Nasdaq netting 39 Points.Both inflation reports released this week came in as low or lower than expected — heartening news for investors who hope the Federal Reserve won’t decide to raise interest rates next month.Just as analysts had forecast, the consumer price index rose 0.1% for July, with a 3.4% increase in the index since a year ago, down from the 3.5% annualized inflation seen last month.The big drop was mostly due to the 2.9% fall in gas prices for July after a 9.7% decrease in June. While gas prices are still 26% higher than a year ago, the recent falls — spurred by hopes the Iran war would conclude — brought some relief.Some experts have picked at the data, however.“I’m a bit confused, though, with the energy calculation,” wrote Peter Boockvar, chief investment officer at One Point BFG Wealth Partners. He noted that although gasoline prices fell 2.9% in the CPI, the AAA has reported 6.6% increase in gas prices and an 11% increase diesel prices in July.Other sectors are still seeing massive inflation, too. Airfare is up more than 25% from a year ago, while artificial intelligence demand continues to jack up prices for computers.The unchanged producer price index — compared with the 0.2% increase many analysts had predicted — was an even better surprise for investors. However, AI-related prices increases still lurk beneath the surface, with prices for transformers and power regulators increasing 4.2% last month.“Core goods inflation will remain sticky this year, thanks to AI buildout, passthrough from the oil price shock and lingering tariff effects,” Grace Zwemmer, U.S. economist at Oxford Economics, wrote in an investor’s note.“However, with services disinflation still in the pipeline, and a labor market that is far from overheating, we think the Federal Reserve will remain on hold for the rest 0f 2026,” she wrote. Another round of CPI and PPI reports are due before the Fed makes its next decision on interest rates in mid-September.Investors weren’t pleased by a drop in in retail sales for July — the first decline in nine months. The report, which showed a 0.6% drop in spending last month, was not just due to the 0.9% drop in gasoline station sales, as core retail sales that exclude those prices fell by 0.5%.Experts, however, have tried to temper disappointment.“The details aren’t quite as bad as the headline,” said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. He noted that Amazon’s Prime Day moved to June from July, skewing data on nonretail store sales.Main Street is feeling better about the U.S. economy lately, too. On Tuesday, the National Federation of Independent Business’s monthly optimism index ticked up by 2.4 points, finally stretching across the group’s 52-year average and marking the highest it has been since last August.A dearth of quality workers remains the top reported issues among small businesses, the survey found, with 36% of respondents reporting job openings they could not fill. Meanwhile, inflation as the most important problem fell for the first time in 2026, with only 14% of respondents reporting that as their biggest concern.“Small business optimism rose again in July, with a significant increase in owners expecting to hire, accompanied by an improvement in plans to make capital expenditures,” NFIB Chief Economist Bill Dunkelberg said in a statement. “Although uncertainty is currently elevated, Main Street anticipated that business conditions will continue to improve.”Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads