US inflation edges up to 3.2% in July

US inflation in July is expected to have risen at roughly the same pace as in June, suggesting that price pressures in the world’s biggest economy are continuing to ease and strengthening the case for the Federal Reserve to hold interest rates steady at its next meeting in September. 

The consumer price index (CPI) is forecast to have increased 0.2 per cent from June to July, according to economists surveyed by Refinitiv. That would make for an increase of 3.3 per cent year over year, up from the annual rate of 3 per cent in June. The slight rise in the annual headline rate is unlikely to matter to the market much as inflation in July 2022 was unusually soft. 

Core inflation, which strips out the volatile food and energy components of the calculation, is also expected to have increased 0.2 per cent from June to July, the same rate as from May to June. The annual figure is expected to be 4.8 per cent, on par with the previous month. 

Official figures will be released at 8:30am eastern time on Thursday.

After hitting a peak rate of 9.1 per cent last summer, headline inflation figures have been moving closer to the Fed’s 2 per cent target. Core inflation, however, has remained stubbornly high, putting pressure on the US central bank to keep interest rates higher for longer. 

But a July report that is roughly in line with last month’s — which marked a meaningful improvement in US inflation — may ease pressure on the Fed to raise rates further this year. 

“If this report is what we’re expecting, everyone will take that as good news,” said David Mericle, a US economist at Goldman Sachs. Goldman has forecast a 0.15 per cent month-over-month increase in core CPI, in line with a 4.66 per cent annual rate, and a 0.16 per cent increase in headline CPI, corresponding with a 3.17 per cent annual rate.

“I think if we do get this, it would strengthen the case for skipping a hike in September . . . It would also strengthen the case for not raising rates again — not just in September, but not doing it in November either,” said Mericle.

In a little over a year, the Fed has raised interest rates to a 22-year high of 5.25 to 5.5 per cent. Fed chair Jay Powell said last month that the central bank would decide on further rate increases on a meeting-by-meeting basis. Traders in the futures market are betting there is an 80 per cent chance that the Fed will not raise interest rates when the committee next meets in September.

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