US consumer prices increase as expected in July

[WASHINGTON] US consumer prices increased slightly in July, potentially weakening the argument for an interest rate increase from the Federal Reserve next month.

The Consumer Price Index (CPI) edged up 0.1 per cent last month after dropping 0.4 per cent in June, which was the first decline in six years, the Labor Department’s Bureau of Labor Statistics said on Wednesday (Aug 12).

In the 12 months through July, the CPI advanced 3.4 per cent after rising 3.5 per cent in June. Excluding the volatile food and energy components, the CPI gained 0.2 per cent last month after being unchanged in June. The so-called core CPI increased 2.5 per cent in the 12 months through July after climbing 2.6 per cent in June.

Economists polled by Reuters had forecast the CPI rebounding 0.1 per cent and core inflation rising 0.2 per cent over the month.

The US central bank tracks the Personal Consumption Expenditures price indexes for its 2 per cent inflation target. The CPI report followed news last week of surprise job losses last month. Prior to the CPI report, financial markets saw a roughly 46 per cent chance of a rate hike at the Fed’s September 15-16 policy meeting, CME’s FedWatch tool showed.

Policymakers will still get August’s CPI and employment reports before that meeting. Economists expect the pace of consumer price increases to pick up in August, reflecting the recent increase in oil prices. Job growth is also expected to rebound as seasonal distortions fade. The Fed last month left its benchmark overnight interest rate in the 3.50 per cent-3.75 per cent range.

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The United States’ position as a net oil exporter and the drawing down of petroleum inventories had cushioned the hit on the economy from the oil price shock sparked by the Middle East conflict, but some economists said that could not persist indefinitely. They also added that the US and other nations would at some point need to replenish petroleum inventories, which would keep oil prices elevated.

President Donald Trump accused Iran of being “devious negotiators” in an interview released late on Monday and described some of his ​current options in the war – “just bop along” and let Teheran fail ‌economically or hit them “really, really hard.” While July’s cooler inflation readings could further temper rate hike expectations, they would likely be of little comfort to consumers, with wages not keeping up with prices.

The high cost of living has soured many Americans’ views of Trump, and could weigh on the Republican party’s chances in the November midterm elections that will determine control of the US Congress for ​the next two years. Trump won the 2024 presidential election in large part because of his promise to lower inflation. REUTERS