Consumer prices in the United States rose as expected in July, but the trend remained consistent with declining inflation and did not change expectations that the Federal Reserve (Fed) will cut interest rates next month.
The consumer price index (CPI) rose 0.2% last month after falling 0.1% in June, according to the Labor Department's Bureau of Labor Statistics on Wednesday. In the 12 months to July, CPI rose 2.9% after rising 3.0% in June.
Economists polled by Reuters had forecast CPI rising 0.2% in the month and up 3.0% year-on-year. The government on Tuesday reported a modest increase in producer prices in July.
Annual consumer price growth has slowed significantly from a peak of 9.1% in June 2022 as higher borrowing costs dampen demand. Although still high, inflation is moving towards the US central bank's 2% target.
The likelihood of a rate cut at the Fed's September 17-18 policy meeting is split between half a percentage point and 25 basis points. Rate prices mostly reflected a jump in the unemployment rate to near a three-year high of 4.3% in July.
However, economists argue that the labor market would have to decline significantly for the central bank to cut rates by 50 basis points. The unemployment rate has risen for four consecutive months largely driven by an increase in labor supply due to immigration rather than layoffs.
The Fed has kept the benchmark overnight interest rate in the 5.25%-5.50% range for one year, after raising it by 525 basis points in 2022 and 2023.
Excluding volatile food and energy components, CPI rose 0.2% in July after rising 0.1% in June. In the 12 months to July, core CPI rose 3.2%. This is the smallest year-on-year increase since April 2021 and follows a 3.3% increase in June.
