US consumer prices were unchanged in July due to a sharp drop in the cost of petrol, delivering the first notable sign of relief for weary Americans who have watched inflation climb over the past two years.
The Consumer Price Index (CPI) was flat last month after advancing 1.3pc in June, the Labor Department said yesterday in a closely watched report that could allow the Federal Reserve to dial down the size of interest rate hikes in September.
The reading was the largest month-on-month deceleration of price increases since 1973 and follows on the heels of a roughly 20pc drop in the cost of gasoline.
Prices at the pump spiked in the first half of this year due to the war in Ukraine, hitting a record-high average of more than $5 per gallon in mid-June, according to motorist advocacy group AAA.
Economists polled by Reuters had forecast a 0.2pc rise in the monthly CPI in July. Aside from its policy meeting next month, the Fed has indicated that several monthly declines in CPI 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.
The lower-than-expected CPI data ignited a strong rally in equity markets, with the S&P 500 index rising 1.7pc in early trading. Investors immediately slashed bets the Fed will deliver a third straight 75-basis-point rate hike at its September 20-21 meeting, instead seeing the US central bank likely to opt for a half-percentage-point hike.
“This is not yet the meaningful decline in inflation the Fed is looking for. But it’s a start and we expect to see broader signs of easing price pressures over the next few months,” said Paul Ashworth, chief US economist at Capital Economics.
US consumer prices have been surging due to snarled global supply chains, a large Covid government stimulus and Russia’s invasion of Ukraine.