US inflation rose at a slower-than-expected pace in July, easing pressure on the Federal Reserve to deliver another mega interest rate hike, according to the latest government data.
Consumer prices rose 8.5% in July from a year earlier, down from a 9.1% year-on-year increase in June.
On a monthly basis, prices were flat between June and July for the first time in more than two years.
Following the inflation news, traders were betting that the Federal Reserve would raise 75 basis points for the third time in a row.
A 50 basis point increase is now widely anticipated when the central bank meets in September.
It has indicated that it will need to see a decline in monthly inflation growth before abandoning its aggressive monetary policy tightening.
“Although today’s downside surprise is likely to be welcomed by investors, the data is still very strong,” said Rob Clariry, investment strategist at UK asset management firm Evelyn Partners. whether not? change our view that US interest rates will continue to rise.
“A more substantial drop in inflation and a softer labor market will likely be required before we get any sign of the Fed changing course.
“With the Fed prioritizing inflation over growth, we expect the US economy to continue to slow down.”
Food and rent rise but fuel prices fall
Food inflation remained strong in July – up 1.1% after rising 1% in June – and rents rose sharply.
But there have been encouraging declines elsewhere – fuel and commodities like corn, wheat and copper.
Supply chain problems witnessed after the worst days of the COVID-19 pandemic are also easing.
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The news will be welcomed by US President Joe Biden, whose approval ratings have been hit by rising inflation, posing a major threat to his Democratic Party as his approach to the election. parliament in November.
Another positive sign for Mr Biden – and the US economy – is that people’s expectations for future inflation have fallen, according to a recent survey by the Federal Reserve Bank of New York.
This could be due to the drop in fuel prices, which is very noticeable for consumers.
Inflation expectations can do their own thing – people are more likely to take steps like demanding higher wages if they think inflation will continue to rise.
Firms then have to raise prices to offset the higher wages, driving prices higher.
