US consumer prices increase as expected in July

US CONSUMER prices rebounded as expected in July, but the trend remained consistent with subsiding inflation and did not change expectations that the Federal Reserve will cut interest rates next month.

The consumer price index (CPI) increased 0.2 per cent last month after falling 0.1 per cent in June, the Labor Department’s Bureau of Labor Statistics said on Wednesday (Aug 14). In the 12 months through July, the CPI increased 2.9 per cent after advancing 3 per cent in June.

Economists polled by Reuters had forecast the CPI increasing 0.2 per cent on the month and rising 3 per cent year on year. The government on Tuesday reported a mild increase in producer prices in July.

Annual consumer price growth has moderated considerably from a peak of 9.1 per cent in June 2022 as higher borrowing costs cool demand. While still elevated, inflation is moving towards the US central bank’s 2 per cent target.

The odds of a rate cut at the Fed’s Sep 17-18 policy meeting are split between half a percentage point and 25 basis points. The rate pricing mostly reflects a jump in the unemployment rate to near a three-year high of 4.3 per cent in July.

Economists, however, argue that the labour market would have to deteriorate considerably for the central bank to deliver a 50 basis point rate reduction. The fourth straight monthly increase in the jobless rate was mostly driven by an immigration-induced rise in labour supply rather than layoffs.

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The Fed has maintained its benchmark overnight interest rate in the current 5.25-5.50 per cent range for a year, having raised it by 525 basis points in 2022 and 2023.

Excluding the volatile food and energy components, the CPI rose 0.2 per cent in July after rising 0.1 per cent in June. In the 12 months through July, the core CPI advanced 3.2 per cent. That was the smallest year-on-year increase since April 2021 and followed a 3.3 per cent gain in June.