U.S. inflation decelerated in July more than expected, reflecting lower energy prices, which could relieve some of the pressure on the Federal Reserve to continue aggressively raising interest rates.
The consumer price index rose 8.5% from a year earlier, cooling off from a 9.1% gain in June, the biggest gain in four decades, Labor Department data showed on Wednesday. . Prices were unchanged from the previous month. Lower gas prices offset increased food and accommodation costs.
The so-called core CPI, which includes more volatile food and energy ingredients, rose 0.3% from June and 5.9% from a year ago.
Economists in a Bloomberg survey expect overall CPI to rise 0.2% from a month ago and rise 8.7% year-on-year. Core CPI is forecast to rise 0.5% from June and 6.1% from a year ago.
Treasury yields slid sideways while S&P 500 futures extended gains and the dollar tumbled. Traders have reduced their odds of a US central bank rate hike to three-quarters of a percentage point next month.
Cost of living
While falling gas prices are good news for Americans, their cost of living remains high, forcing many to upload on credit cards and save the drain. After last week’s data showed still strong Labor demand and firmer wage growth, further falling inflation could make it less urgent for the Fed to extend rate hikes.
Gasoline prices fell 7.7% in July, the highest level since April 2020, after rising 11.2% a month earlier. Utilities prices fell 3.6% from June, the highest level since May 2009.
However, food costs rose 10.9% from a year ago, the highest since 1979. Used car prices fell.
Although inflation has decelerated, Fed officials say they want to see months of evidence that prices are cooling, especially in core measure. They will have another round of monthly CPI and employment reports before their next policy meeting on September 20-21.
The cost of shelter – the largest component of services and accounting for about a third of the overall CPI – increased 0.5% from June and 5.7% from last year, the highest since 1991. That reflects a 0.7% increase in the residence’s primary rent. Meanwhile, hotels fell 3.2%.
In other entertainment areas, airfares fell 7.8% month-on-month, the highest level in nearly a year.
—With support from Kristy Scheuble and Reade Pickert.
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