US inflation falls to 2.9% in July

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US inflation fell to 2.9 per cent in July, bolstering the case for the Federal Reserve to cut interest rates at its meeting in September.

The annual rise in the consumer price index was below June’s rate of 3 per cent and economists’ expectations that the figure would hold steady.

Core CPI, which excludes volatile food and energy prices, rose by 3.2 per cent, compared with 3.3 per cent in June, according to data published by the Bureau of Labor Statistics on Wednesday.

The latest data will raise hopes that the Fed is succeeding in quelling price pressures and will be welcomed in the White House. US voter disquiet about inflation has been a headwind for Democrats in this year’s presidential election campaign.

Fed officials have sought more evidence that US inflation is cooling sustainably before lowering borrowing costs as Americans show signs of reining in their spending.

The Fed rapidly ratcheted up interest rates to fight inflation that hit multi-decade highs in 2022 due to supply bottlenecks and a surge in demand following the Covid-19 pandemic.

The US central bank has held rates at a 23-year high of 5.25-5.5 per cent for more than a year.

US stock futures fluctuated between small gains and losses following the data release. Contracts tracking the benchmark S&P 500 index gained 0.2 per cent before falling 0.1 per cent, while those tracking the tech-heavy Nasdaq 100 edged 0.2 per cent lower.

In government bond markets, the policy-sensitive two-year Treasury yield rose 0.05 percentage points to 3.99 per cent, while the 10-year yield rose 0.01 percentage point to 3.86 per cent. Yields rise as prices fall.

Fed officials will next meet in mid-September, when they are expected to cut borrowing costs for the first time since the onset of the pandemic in March 2020.

As it weighs further cuts, the Fed is keeping close tabs on the US jobs market, which grew more slowly than expected in July, according to data released earlier this month.

The unemployment rate has risen for four straight months, to 4.3 per cent, sparking fears that the economy is weakening.

The sharper pullback in jobs growth fanned fears that the Fed has waited too long to cut rates, and sparked a bout of turmoil across US financial markets last week.

Some economists have warned that unless the central bank cuts borrowing costs sharply soon, it will risk inducing a recession.

Fed chair Jay Powell has argued that inflation can return to the central bank’s 2 per cent target without a recession.

He has also said the central bank would respond “if the labour market were to weaken unexpectedly or inflation were to fall more quickly than anticipated”.