The U.S. consumer price index rose 8.5 percent year-on-year in July, a slower annual increase than in June, as inflationary pressure eased amid lower gasoline prices.
CPI data released on Wednesday showed no increase between June and July, compared with a 1.3% monthly increase recorded a month ago. On an annual basis, the CPI slowed from a 9.1% rise in June.
Both figures were improvements on economists’ expectations of a 0.2% increase in CPI on a monthly basis and 8.7% on an annual basis – but average inflation was still near 40-year highs.
The data is unlikely to be a big enough change to prevent the Federal Reserve from moving forward with more aggressive monetary tightening to suppress inflation.
The main measure of the consumer price index (CPI) – which strips out more volatile food and energy prices and is most closely watched by the Fed – registered a smaller monthly increase of 0.3 percent, compared with 0.7 percent in June . But on an annual basis, it grew at an unchanged rate of 5.9 percent.
Wall Street stock futures jumped after the inflation report, with contracts tracking the broad S&P 500 rising 1.6 percent. Those tracking the Nasdaq 100, which includes technology stocks that are more sensitive to changes in interest rate expectations, added 2.2 percent.
U.S. Treasuries also rose, with the yield on the 10-year Treasury — a proxy for global borrowing costs — falling 0.1 percentage point to just under 2.7 percent. The policy-sensitive two-year yield edged down 0.19 percentage points to 3.1%, reflecting a sharp rise in the instrument’s price.
Traders have started to price in smaller rate hikes from the Fed in the coming months. Before the report, the futures market expected the central bank to raise rates to 3.6% by the end of the year. Now expectations are 3.4 percent. Bets that the Federal Reserve will raise interest rates by 0.75 percentage points at its September policy meeting also fell.
The inflation data came after a strong jobs report last Friday that allayed fears of an imminent recession but suggested the Fed was struggling to cool an overheated economy.
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It comes as President Joe Biden’s administration and congressional Democrats celebrate the Senate’s passage of a $700 billion climate, tax and health care bill that is a crucial pillar of the president’s economic agenda.
Although it has been called the Inflation Reduction Act, the bill is not expected to have a significant effect on prices in the short term. However, some measures are designed to reduce costs in the medium and long term, including a provision allowing the government to negotiate prescription drug prices.
Additional reporting by Harriet Clarfelt in London
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