U.S. inflation slips below 3%, raising hopes for an interest rate cut

US inflation hit its lowest level since March 2021 in July, coming in at just 2.9% and further strengthening the case for an interest rate cut from the Federal Reserve.

Analysts expected inflation in the US to reach three percent in July, unchanged from where it fell until June.

While that’s still above the Fed’s two percent target, it’s down significantly from the highs of 9.1 percent just two years earlier.

Core inflation, or inflation excluding volatile components such as food and energy, came in at 3.2%, the lowest level since April 2021 and where analysts had expected.

Price pressures came mainly from the cost of shelter, which rose 0.4 percent between June and July and 5.1 percent over the past year. The price of rent rose even faster, rising 0.5 percent over the month.

Shelter price increases now account for more than 70 percent of price increases for core inflation and have been a persistent problem for the Fed to reduce.

Meanwhile, the price of energy and gasoline were both flat between June and July, with the former rising 1.1 percent over the past year.

“July’s US CPI report further helps solidify September’s Fed tapering, although after July’s weaker-than-expected jobs data, the labor market, not inflation, is likely to drive both the extent of such of moves, as well as the scale and speed of the next steps toward policy normalization,” said Michael Brown, senior research strategist at Pepperstone.

Markets are currently evenly split on whether the Fed will cut interest rates at its September meeting by 0.25 percent or 0.5 percent, according to CME Group data.

“A September cut was already strongly hinted at by Chairman Powell in the July press conference and became an effective certainty after the July jobs report,” Brown explained.

By the end of the year, markets expect a cut of around 1% during the three meetings the central bank has left.

After AM city

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