The S&P 500 rose as the annual inflation rate fell to 3%, encouraging investors who had bought stocks after the decline in early August to remain active.
Consumer prices rose 2.9% year over year, down from 3% in June and the lowest reading since 2021, the Bureau of Labor Statistics said on Wednesday. Month-on-month, prices increased by 0.2%. Economists polled by Dow Jones expected a 0.2% increase from the previous month and a 3% year-over-year increase.
Core inflation, which excludes food and energy from the headline figure, rose 0.2% in the month, in line with expectations.
The report comes a day after lower-than-expected producer inflation numbers gave a boost to the stock market. The Dow Jones rose more than 400 points, or about 1%. The S&P 500 rose 1.7%, while the Nasdaq Composite rose 2.4%.
Investors have been waiting for the Consumer Price Index (CPI) reading to get a full picture of the state of the economy, and to further strengthen the prospect of interest rate cuts at the central bank's meeting in September.
"It may not be as chilly as yesterday's Producer Price Index (PPI) figure, but today's CPI reading that is in line with expectations probably won't change the situation," said Chris Larkin, managing director of trading and investments for E-Trade from Morgan Stanley. "Now the main question is whether the Fed will cut rates by 25 or 50 basis points next month."
Futures prices are almost evenly split between expectations for a quarter- or half-percentage-point cut at the central bank's Sept. 17-18 meeting, and forecasts of an overall basis-point change by the end of the year, according to CME's FedWatch Tool.
On the other hand, the US dollar index which measures the US dollar against six major currencies traded down 0.19% to a trading level of 102.195.
