The US has just published its latest inflation data, showing headline consumer price inflation dropping below 3% for the first time since 2021 and setting up the United States Federal Reserve for an interest rate cut in September.
In July, prices rose 2.9% compared to the same period in 2023 and down from 3% in June, reaching the Fed’s official target range (one percentage point on either side of 2%), the US Labor Department said.
Meanwhile, core CPI, which excludes volatile food and energy prices, rose by 3.2%, compared with 3.3% in June. Grocery prices also rose 1.1%, while car insurance has soared more than 18% during this period. President Joe Biden said the report showed “progress fighting inflation and lowering costs for American households”.
Market analysts had been eagerly awaiting the publication of the report, following less-than-expected jobs data published last week, which, alongside a rate hike in Japan, led US stocks to suffer their sharpest decline in nearly two years on August 5, fostering fears of an upcoming recession.
Notably, following the latest inflation reports, US stocks managed their first five-day rally in more than a month on Wednesday. The benchmark S&P 500 closed 0.4% higher while Nasdaq showcased a 0.03% gain.
“US indexes finished strongly higher on Tuesday and hit a near two-week high after softer producer prices data reinforced bets of an interest-rate cut by the Federal Reserve in September,” said Marc Pussard, Head of Risk, APM Capital.
As a result, investors now expect a 25 basis point rate cut to be announced after the next Fed meeting, scheduled for September. The US central bank has held rates at a 23-year high of 5.25-5.5% for more than a year.
