Source: AFP
U.S. consumer inflation eased slightly in July, government data showed on Wednesday, the smallest 12-month rise since March 2021 and a positive sign for the Federal Reserve as it weighs cutting interest rates.
The consumer price index (CPI) fell to 2.9 percent last month from a year earlier, down slightly from 3.0 percent in June, the Labor Department said in a statement, while a measure that strips out volatile food and energy costs decreased at an annual rate. 3.2 percent.
That was slightly below the median forecast of economists polled by Dow Jones Newswires and the Wall Street Journal.
Monthly inflation rose 0.2% after falling in June, in line with expectations.
“Today’s report shows that we continue to make progress fighting inflation and reducing costs for American households,” US President Joe Biden said in a statement.
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“We have more work to do to lower costs for hard-working Americans, but we’re making real progress, with wages rising faster than prices for 17 consecutive months,” he added.
However, a spokesman for Donald Trump’s presidential campaign team took a different view of the data, seeking to blame Vice President and Democratic presidential candidate Kamala Harris for the cumulative rise in prices since Biden took office in January 2021 .
“Under Kamala Harris, everything costs 20 percent more than it did under President Trump,” Trump campaign spokeswoman Carolyn Levitt said in a statement. “America cannot afford four more years of Kamala’s failed economic policies”
Refuge
Nearly 90 percent of the monthly increase was down to a 0.4 percent rise in housing costs, the Labor Department said. Energy prices were unchanged, while the food index rose 0.2%.
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So-called “core” inflation, excluding volatile food and energy prices, also fell last month to 3.2 percent — its lowest level since April 2021.
The July CPI data is good news for the Federal Reserve as it weighs the right time to start cutting interest rates from a 23-year high.
The US central bank is trying to reduce inflation to its long-term target of 2% without collapsing the economy or causing the unemployment rate to rise, known as a “soft landing”.
After a small rise in the Fed’s favored measure of inflation earlier in the year — which is calculated slightly differently than the CPI — inflation is now easing again.
In other good news for the Fed, economic growth remains positive and the labor market has shown signs of better balance without a dramatic increase in the unemployment rate.
Against that backdrop, Fed Chairman Jerome Powell suggested last month that policymakers could cut interest rates “as soon as” September if data continues to come in as expected.
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“sticky” rents
“Today’s report will increase confidence in the Fed that inflation is indeed on a sustainable path to 2%,” economists at High Frequency Economics (HFE) wrote in a note to clients.
But rising shelter inflation remains a “thorn in the Federal Reserve’s side” as it weighs rate cuts, Oxford Economics chief economist Ryan Sweet wrote in a note Wednesday, adding that rent growth was broad basis.
“Rents tend to be sticky, but with deflation elsewhere, the Fed has the green light to cut rates by 25 basis points at its September meeting,” he added.
As futures traders overwhelmingly expect the Fed to cut interest rates in September, according to CME Group data, the question is how big its first cut will be.
Traders have assigned a greater than 55 percent chance that it will make a cut of a quarter of a percentage point, leaving the chance of a larger cut of half a point at just under 45 percent.
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“July’s CPI keeps the Fed on track for a rate cut in September, but don’t hold your breath for an oversized cut,” Sweet said.
Source: AFP
