US consumer inflation rate at better-than-expected 2.9% in July; see details

US consumer inflation was recorded at an annual 2.9 per cent in July, marking a month-on-month increase of 0.2 per cent - or 20 bps, data released on Wednesday showed. Most economists had pegged consumer inflation in the world's largest economy at 3.0 per cent. The data comes before a key review of the Federal Open Market Committee (FOMC)—headed by the Federal Reserve Chairman—due next month, where the US central bank is widely expected to announce a reduction in the benchmark interest rates. 

"The index for shelter rose 0.4 per cent in July, accounting for nearly 90 per cent of the monthly increase in the all items index. The energy index was unchanged over the month, after declining in the two preceding months. The index for food increased 0.2 per cent in July, as it did in June. The food away from home index rose 0.2 per cent over the month, and the food at home index increased 0.1 per cent," the US Bureau of Labor Statistics said.

The index for all items less food and energy rose 0.2 per cent in July, after rising 0.1 per cent in the preceding month, whereas the all items index rose 2.9 per cent for the 12 months to July, its smallest 12-month rise since March 2021, according to the department. 

The indices on areas such as shelter, motor vehicle insurance, household furnishings and operations, education, recreation, and personal care, increased in July. On the other hand, those on used cars and trucks, medical care, airline fares, and apparel decreased.

Food inflation

The food index increased 0.2 per cent in July, as it did in June. 

Energy inflation

The energy index was unchanged in July, after decreasing 2.0 per cent in June. The gasoline (petrol) index was also unchanged over the month.

What economist says

With July CPI meeting expectations against market hopes of a softer reading, a September rate cut "remains in play but the quantum will be decided by labour market dynamics from here", said Madhavi Arora, Lead Economist at Emkay Global Financial Services. 

"However, with markets expecting (or rather hoping for) a softer print, there isn't much here that screams out for a 50 bps cut in September... With the Fed now focusing more on labour than inflation, September rate cut/s remain in play, but labour market dynamics will be a bigger driver of the 25 vs 50 bps debate from here onwards," Arora added. 

What is US CPI?

The Consumer Price Index (CPI) is an index that measures the change in prices paid by consumers for goods and services.

It reflects spending patterns for each of two population groups: all-urban consumers and urban wage earners and clerical workers.

The all-urban consumer group represents over 90 per cent of the total US population.