US consumer price inflation slows as Fed mulls next interest rate rise      

The US Federal Reserve has indicated that several monthly declines in inflation growth would be needed to end its aggressive monetary policy tightening.

Prices at the pump spiked in the first half of this year, but have since dropped.

US consumer prices were unchanged on average in July due to a sharp drop in the cost of petrol, delivering the first notable sign of relief for inflation. 

Consumer prices were flat in the month after advancing 1.3% in June, official figures showed, even as underlying inflation pressures remain elevated.

It comes as the US Federal Reserve mulls whether to embrace another super-sized interest rate hike in September. 

Prices at the pump spiked in the first half of this year due to the Russian invasion of Ukraine, hitting a record-high average of more than $5 (€4.84) per gallon in mid-June. 

The Federal Reserve has indicated that several monthly declines in inflation growth would be needed before it lets up on the aggressive monetary policy tightening it has delivered to tame inflation currently running at a four-decade high and bring it down to its 2% goal. 

But the lower-than-expected data ignited a strong rally in equity markets as investors immediately pared bets the Fed would deliver a third straight 75-basis-point rate hike at its late September gathering.

"This is not yet the meaningful decline in inflation the Fed is looking for," said Paul Ashworth, chief US economist at Capital Economics. 

But it's a start, and we expect to see broader signs of easing price pressures over the next few months." 

Like in Europe and elsewhere, US consumer prices have been surging due to a number of factors, including snarled global supply chains, massive government stimulus early in the Covid-19 pandemic, and Russia's invasion of Ukraine.

However, food is one component of the US inflation report that remained elevated in July, rising 1.1% after climbing 1% in June.

In the 12 months through July, the consumer price inflation increased by a weaker-than-expected 8.5% following a 9.1% rise in June. 

Underlying inflation pressures, which exclude volatile food and energy components, also showed some green shoots, despite remaining strong. 

Reuters