US consumer inflation eased slightly in July, according to government data published Wednesday, its smallest 12-month increase since March 2021 and a positive sign for the Federal Reserve as it weighs cutting interest rates.
The consumer price index eased to 2.9 per cent last month from a year ago, down slightly from 3.0 per cent in June, the Labour Department said in a statement, while a measure that strips out volatile food and energy costs cooled to an annual rate of 3.2 per cent.
This was slightly lower than the median forecast of economists surveyed by Dow Jones Newswires and The Wall Street Journal.聽
The monthly inflation rate picked up by 0.2 per cent after declining in June, in line with expectations.
鈥楾oday鈥檚 report shows that we continue to make progress fighting inflation and lowering costs for American households,鈥� US president Joe Biden said in a statement.聽
鈥榃e have more work to do to lower costs for hardworking Americans, but we are making real progress, with wages rising faster than prices for 17 months in a row,鈥� he added.聽
Almost 90 per cent of the monthly increase was down to a 0.4 per cent increase in shelter costs, the Labor Department said. Energy prices remained unchanged, while the index for food rose 0.2 per cent.聽
So-called 鈥榗ore鈥� inflation, excluding volatile food and energy prices, also eased last month to 3.2 per cent 鈥� its lowest level since April 2021.聽
The July CPI data are good news for US Federal Reserve as it weighs the right time to start bringing interest rates down from a 23-year high.聽
The US central bank has been attempting to lower inflation to its long-term target of two per cent without crashing the聽economy聽or causing a surge in the unemployment rate, known as a 鈥榮oft landing鈥�.聽
After a small uptick in the Fed鈥檚 favoured inflation measure earlier the year 鈥� which is calculated slightly different the CPI 鈥� inflation is now easing again.聽
In other good news for the Fed, economic growth remains positive, and the labour market has shown signs of coming into better balance without a dramatic rise in the unemployment rate.聽
Against this backdrop, Fed chair Jerome Powell suggested last month that the policymakers could cut rates 鈥榓s soon as鈥� September, if the data continue to come in as expected.聽聽
鈥楾oday鈥檚 report will raise confidence within the Fed that inflation is indeed on a sustainable path towards 2 per cent,鈥� economists at High Frequency Economics wrote in a note to clients.聽
But the rise in shelter inflation remains 鈥榓 thorn in the Federal Reserve鈥檚 side鈥� as it weighs rate cuts, Oxford Economics chief US economist Ryan Sweet wrote in a note published Wednesday, adding that the rise in rents was broad-based.
鈥楻ents tend to be sticky but with the disinflation elsewhere, the Fed has the greenlight to cut interest rates by 25bps (basis points) at its September meeting,鈥� he added.聽
With futures traders overwhelmingly expecting the Fed to cut interest rates in September, according to data from CME Group, the question is how big its first cut will be.聽
Traders have assigned a probability of close to 60 per cent that it will make a quarter-percentage point cut, while the chance of a larger, half-point cut stand at just over 40 per cent.聽
鈥楯uly CPI keeps the Fed on track to cut rates in September but don鈥檛 hold your breath for super-sized cut,鈥� Sweet said.