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