US consumer prices rise moderately; annual increase slows

STORY: U.S. consumer prices rose moderately in July, further strengthening expectations the Federal Reserve will cut interest rates next month.

The report from the Labor Department showed the consumer price index climbed two tenths of one percent last month, matching economists’ expectations.

Housing costs such as rent accounted for nearly 90% of the gain.

The annual increase fell to 2.9%, the first time it has come in below 3% since March 2021.

The annual rate excluding volatile food and energy prices also dropped to its lowest level since the first half of 2021.

This comes one day after a report showed a mild increase in producer prices in July, suggesting that inflation was firmly back on a downward trend.

That should allow the U.S. central bank to focus more on the labor market amid growing concerns of a sharp slowdown.

The odds of a 25 basis point interest rate cut from the Fed in September have now climbed to 57% from 47% Tuesday.

The remainder see a 50 basis point reduction, according to CME’s FedWatch Tool.

Economists argue the labor market would have to deteriorate considerably for the central bank to make such a big move.

In addition to the rise in housing costs, food prices increased again while gasoline prices were unchanged.