US headline inflation in July ticked up slightly from June, strengthening the case for the Federal Reserve to hold interest rates steady at its next meeting in September.
The Bureau of Labor Statistics on Thursday reported that the consumer price index (CPI) rose 0.2 per cent month on month, an increase of 3.2 per cent year on year, up from the annual rate of 3 per cent in June. The slight rise in the annual headline rate is unlikely to matter to the market much as inflation in July 2022 was unusually soft.
Core inflation, which strips out the volatile food and energy components of the calculation, increased 0.2 per cent during July, the same rate as the previous month. The annual figure was 4.7 per cent, a slower pace than June.
The monthly figures for both headline and core inflation were in line with Wall Street expectations, while the annual figures were below Refinitiv forecasts.
After hitting a peak rate of 9.1 per cent last summer, headline inflation figures have been moving closer to the Fed’s 2 per cent target. Core inflation, however, has remained stubbornly high, putting pressure on the US central bank to keep interest rates higher for longer.
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July’s report, however, may ease pressure on the Fed to raise rates further this year. While the figures are roughly in line with the prior month, June’s report marked a meaningful improvement in inflation.
In a little over a year, the Fed has raised interest rates to a 22-year high of 5.25 to 5.5 per cent. Fed chair Jay Powell said last month that the central bank would decide on further rate increases on a meeting-by-meeting basis.
Labour market data released last week also suggested that the Fed’s aggressive campaign to raise interest rates has cooled the US economy. US jobs growth was weaker than forecast in July and was revised lower for the prior two months. There was still some evidence of inflationary pressure in the report, however, with the unemployment rate dropping to 3.5 per cent.
Source: Economy - ft.com
