The annual pace of price rises in the world’s largest economy fell from 3% in June to 2.9% in July, according to official figures. It comes as financial markets expect the Federal Reserve to cut interest rates next month for the first time since March 2020.
Analysts have widely forecast that easing inflation in the US will almost certainly spur the Fed to cut interest rates next month for the first time since March 2020.
The US central bank has held rates steady in the 5.25% to 5.50% range since last July.
Wednesday’s US figures also revealed that the month-on-month consumer prices index (CPI) of inflation rose by 0.2%, as expected, after falling by 0.1% in June.
Annual core inflation – which strips out volatile food and energy prices – was 3.2%, also as forecast.
Following the publication of the data, financial markets in the US predicted there was now a more than 60% chance of the Fed cutting interest rates by 0.25 percentage points in September.
The likelihood of a bigger 0.5 percentage point cut was judged to be 39.5%.
Before the inflation data was published, the markets had predicted that the likelihood of a 0.25 or 0.5 percentage point cut was almost 50-50.
Economist Paul Ashworth, from research firm Capital Economics, said: “Overall, July’s CPI report is probably best described as mildly encouraging – it adds support for a 25bp [basis point] rate cut in September but, at the same time, doesn’t suggest price pressures are collapsing in a way that could warrant a bigger 50bp reduction.”
Jack McIntyre, from investment firm Brandywine Global, said: “We don’t know whether it’s going to be a 25 or 50 [basis points cut], but I don’t think inflation’s going to determine that.”
He added that further statistics in the coming weeks on the labour market were likely to have an even bigger impact on the Fed’s thinking.