US inflation eased slightly in July as underlying price pressures cooled, giving the Federal Reserve more room to hold rates steady even as the unresolved Mideast Gulf war kept energy costs elevated.
The consumer prices index (CPI) rose in July at a 3.4pc annual pace, according to the Labor Department, down from 3.5pc in June. Core inflation, which strips out volatile food and energy, rose at a 2.5pc pace, down from 2.6pc in June. Both were in line with estimates of analysts surveyed by Trading Economics and followed a jobs report last week showing weak US labor market conditions,
Pantheon Macroeconomics in a note to clients said the "benign CPI data" give the Fed "solid grounds, alongside the weak jobs data, for keeping policy unchanged next month".
The July report reinforces the view that inflation is no longer accelerating. Combined with last week's weaker-than-expected employment report, the data reduced expectations that the Fed will raise rates at its September meeting. The CME FedWatch tool probabilities following the CPI release implied a 38pc chance of a September hike, down from 54.5pc odds a week ago.
On a monthly basis, CPI crept up by 0.1pc in July after falling by 0.4pc in June, while the core index rose by 0.2pc for the month after no change in June, suggesting renewed pressures after Gulf war hostilities resumed in July following a brief ceasefire.
The energy index rose by 14.7pc for the 12 months ended in July, slowing from a 15.7pc gain in June.
Energy commodities rose by 24.7pc in July, down from a 27.1pc gain in June. Gasoline rose on the year by 24.6pc, slowing from a 26.7pc gain the prior month. Fuel oil rose by 39.1pc following a 42.9pc gain. Piped gas services rose on the year by 4.3pc after a 3pc gain in June.
The food index rose at an annual 3pc pace in July, unchanged from the prior month.
"The decline in gasoline prices will likely get reversed in August," Oxford Economics said in a note.
Shelter rose at a 3.2pc pace, slowing from 3.3pc in June.
Services less energy services, considered a core reading of service prices, rose at a 3pc pace, slowing from 3.2pc in June.
New vehicle prices rose on the year by 0.5pc in July, unchanged from June, while used vehicles prices fell by 1.9pc in July compared with a 1.8pc decline in June.
Medical care services rose at a 2.7pc pace, down from 2.9pc in June. Transportation services rose by 2.9pc. slowing from 3.4pc. Airline fares rose from a year earlier by 25.5pc in July, compared with 26.5pc the prior month.
