US core inflation comes in subdued, easing pressure on Fed: Report

Underlying US inflation remained subdued in July, potentially giving the Federal Reserve more room to weigh cooling price pressures against a recent slowdown in hiring as policymakers consider their next interest-rate move, Bloomberg News reported.

The consumer price index excluding food and energy rose 0.2% in July from the previous month, according to data from the Bureau of Labor Statistics released on Wednesday. On an annual basis, core CPI increased 2.5%, matching its slowest pace since March 2021.

Overall consumer prices rose 0.1% month-on-month and 3.4% from a year earlier.

The data could reduce pressure on Fed officials to raise borrowing costs at their September 15-16 meeting, particularly as the impact of the energy-price shock linked to the Iran war appears to be fading. Policymakers will receive additional inflation and employment data before the September meeting, while investors are also expected to closely watch Fed Chair Kevin Warsh’s remarks at the Jackson Hole symposium later this month.

“It’s good news for those Fed officials who want to be patient here,” Oscar Munoz, head of US economics at TD Securities, said. “At least for the Fed officials who are looking for signs of progress, disinflation, it’s a second consecutive report.”

US stocks opened higher following the report, while Treasury yields declined as investors reduced bets on a September rate hike.

Energy and food prices ease

Energy and gasoline prices declined for a second consecutive month. Although US gasoline prices moved above $4 a gallon again in July after a ceasefire between the US and Iran broke down and hostilities resumed, average prices for the month remained below June levels.

Grocery prices also declined for the first time since March. The drop was partly driven by a record decline in lettuce prices amid a cyclospora outbreak. Uncooked ground beef prices fell 1.6%, marking their steepest decline since 2020.

Shelter costs increased 0.1%, restrained by a 3.3% decline in hotel and motel prices. Meanwhile, measures tracking rents rose 0.3%.

Services prices excluding energy and rents increased a modest 0.2%, after declining in the previous month. Medical care and airfares were among categories recording price increases.

Technology prices rebound

Goods prices excluding food and energy commodities increased after two consecutive monthly declines. Computer software and accessories prices jumped 21.2% from a year earlier, the largest increase on record, while prices for computers, peripherals and smart-home assistants posted their strongest annual gains in more than four years.

Economists are watching price increases on consumer technology products, including Apple Macs and iPads, amid a global memory-chip shortage linked partly to demand from data-centre construction.

Bloomberg Economics said the July CPI report was modest enough to reduce the chances of a September rate hike, although it did not eliminate the possibility.

Further clues will come from producer-price data due Thursday and the personal consumption expenditures inflation measure later this month. A separate report showed real average hourly earnings fell 0.2% year-on-year in July, extending a period of weak readings.