July CPI increased just 0.1% month over month, while headline inflation remained 3.4% higher than a year earlier. Core CPI rose 0.2% and was up 2.5% year over year.

July Producer Price Index (PPI - tracks the prices that manufacturers are paying for goods) was unchanged for the month, while its year-over-year increase slowed to 4.7% from 5.5% in June.

Those reports helped reduce concerns that the Federal Reserve would raise rates again in September. By Friday, futures markets were assigning roughly a 70% probability that the Fed would leave rates unchanged, compared with 56% a week earlier.

That helped support stocks, especially real estate, small caps and other rate-sensitive areas.

Friday’s retail-sales report was much less encouraging.

U.S. retail sales unexpectedly fell 0.6% in July, the first monthly decline in nine months and the largest decline in 14 months. Economists had expected a small increase. More importantly, the “control group” used in GDP calculations also fell 0.4%.

Consumer sentiment also deteriorated sharply. The University of Michigan’s preliminary August sentiment index fell to 51.0 from 55.2 in July, reflecting continued frustration with elevated living costs.

This matters because consumer spending represents more than two-thirds of U.S. economic activity.

For months, investors have been waiting for high interest rates and elevated prices to eventually slow households down.

We may finally be seeing evidence that it is happening.

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