U.S. consumer prices rose at a slower pace in July, suggesting that the Federal Reserve's chances of raising interest rates in September may be diminishing. With the labor market showing signs of weakness and inflation remaining within expected ranges, market sentiment is shifting toward maintaining current interest rates rather than pursuing further increases. Reuters noted that this data could lessen the need for a rate hike next month.
The U.S. Bureau of Labor Statistics (BLS) reported on August 12 that the Consumer Price Index (CPI) for July increased by 3.4% compared to the same month last year, a slight decrease from June's 3.5%. Month-over-month, the CPI rose by 0.1%, aligning with market expectations.
Excluding the volatile food and energy sectors, core CPI also showed a slowdown, rising 2.5% year-over-year in July, down from 2.6% in June. The month-over-month increase for core CPI was 0.2%. Both headline and core figures met market forecasts, indicating no unexpected inflation shocks.
Prior to the CPI announcement, the futures market reflected a 46% chance of a rate hike in September, with the likelihood of a freeze already surpassing that of an increase.
Energy prices played a significant role in curbing inflation, with July energy costs falling 1.5% from the previous month, and gasoline prices dropping 2.9%. However, compared to a year ago, energy and gasoline prices remain elevated, up 14.7% and 24.6%, respectively.
Housing costs rose by 0.1% from the previous month, accounting for about two-thirds of the overall monthly CPI increase. Food prices also saw a 0.1% rise. Service prices, excluding energy, increased by 3.0% year-over-year, indicating that inflationary pressures in the service sector have not been fully alleviated.
This inflation data, coupled with last week's disappointing employment figures, is likely to reduce the Federal Reserve's need for further tightening. The Fed held its benchmark interest rate steady at 3.50% to 3.75% last month. The next Federal Open Market Committee (FOMC) meeting is scheduled for September 15-16.
However, the possibility of a rate hike is not entirely off the table. Rising international oil prices due to Middle Eastern tensions could still impact future inflation. The Fed plans to assess August's employment and CPI data before making a decision on interest rates at the September meeting.
* This article has been translated by AI.
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