US Federal Reserve frozen by weak US inflation as price rises slip back

Jake Cordell
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Weak inflation data may have pushed back the chances of a US rate hike
Weak inflation data may have pushed back the chances of a US rate hike (Source: Getty)

Inflation slipped back in the US economy in July, further easing the pressure on the US Federal Reserve to hike interest rates.

The consumer prices index (CPI) came in at 0.8 per cent in July, on a non-seasonally adjusted basis, in figures released by the US Bureau of Labor Statistics this afternoon. That was down from a rate of one per cent in June and slightly off economists' expectations.

Falling fuel prices, which dropped by 4.4 per cent over the month, dragged the index down, while the rate of core inflation, which strips out the most volatile goods, also edged back.

The weak figures sent the US dollar down as investors interpreted the data would give the Fed more time before pulling the trigger on the second rate rise since the financial crisis. The euro rose 0.8 per cent against the greenback, to $1.1277, while sterling also lost some of the ground it had made up against the dollar on the news, falling from $1.2988 to $1.2945 after the report.

Read more: US economic growth disappoints in the second quarter

"Today’s underwhelming price growth figures follow on the heels of some disappointing data out of the US which will have Janet Yellen and her colleagues at the Fed re-evaluating their interest rate policy," said Dennis de Jong of

"For much of the summer it had appeared that an interest rate hike was due sooner rather than later.

“However, with the fallout from Brexit, volatility in the financial markets and weakening demand fuelling global uncertainty, many now believe Yellen will likely stick rather than twist for the time being.”

Steve Murphy, US economist at Capital economics agreed, stating: "Heading CPI inflation remained unusually low in July. Core consumer prices was below consensus expectations ... and will give Fed officials another reason to delay the next rate hike until December."

Despite the fall in inflation, the president of the New York Federal Reserve William Dudley, said earlier today: "We're edging closer towards the point in time where it'll be appropriate to raise interest rates further". His comments pushed the chances of an itnerest rate rise this year past 50 per cent for the first time since the UK's EU referendum, according to futures markets.

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