US inflation came in below expectations in a boost for hopes that the US Federal Reserve will start cutting interest rates in September.
Figures from the Bureau of Labor Statistics showed that prices increased 3.0 per cent per cent in the year to June, below the 3.1 per cent expected by economists and down from 3.3 per cent last month.
The figures showed that consumer prices actually fell 0.1 per cent in June having been flat in May. Economists had expected a 0.1 per cent increase.
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Falling gasoline prices more than offset an increase in shelter costs while food prices only increased 0.2 per cent, the data showed.
Core inflation, which strips out volatile components like food and energy, fell to 3.3 per cent, down from 3.4 per cent last month and below expectations.
Following the news, the pound jumped 0.5 per cent against the dollar to trade at just over $1.29 while the FTSE 100 climbed higher as investors piled on bets that the Fed would start cutting interest rates in September.
“This has been one of the most hotly anticipated inflation prints for some time in the US as markets eye up a rate cut in September,” Lindsay James, investment strategist at Quilter Investors said.
“This should, all other data providing, give the Fed enough of a pathway to cut rates in a couple of months’ time and start the US on a similar trajectory to Europe,” she said.
The main interest rate stands at its highest level in 23 years, in a range of 5.25-5.50 per cent. It has remained at that level since last July as rate-setters await signs that inflation is firmly under control.
Over the past few months traders have seen signs that the labour market is easing while inflation falls back to target. Figures out last week showed that unemployment rose to 4.1 per cent in June, the first time it has been over four per cent in two years.
“This is the latest in a string of data releases that continues to set the stage for the Fed to cut interest rates this year, potentially as soon as September,” Richard Flynn, managing director at Charles Schwab UK, said.
Speaking in Congress yesterday, Jerome Powell refused to give any guidance on the likely timing of rate cuts, suggesting he needed “greater confidence” that inflation was falling sustainably to target.
He did, however, note that there had been “modest further progress” since the Fed’s last decision in June.