US inflation slows in July, clearing way for a cut in interest rates

Prices are still rising sharply for some services.

Year-over-year inflation has reached its lowest level in more than three years in July, the latest sign that the worst price spike in four decades is fading and setting up the United States Federal Reserve for an interest rate cut in September.

Wednesday’s report from the US Department of Labor showed that consumer prices rose just 0.2 percent from June to July after dropping slightly the previous month for the first time in four years. Measured from a year earlier, prices rose 2.9 percent, down from 3 percent in June. It was the mildest year-over-year inflation figure since March 2021.

The ongoing inflation slowdown could affect the US presidential campaign, given that candidate and former President Donald Trump has highlighted rampant inflation as a key failing of the administration of the incumbent, President Joe Biden.

However, consumers tend to look at prices of everyday items like groceries and petrol as well as the health of the stock market, and their view on the state of the economy is based on that as opposed to overall data, said Ryan Sweet, chief US economist at Oxford Economics, adding that lower inflation was not an automatic win for the Democratic Party.

The government said nearly all of July’s inflation reflected higher rental prices and other housing costs, a trend that, according to real-time data, is easing. As a result, housing costs should rise more slowly in the coming months, contributing to lower inflation.