US inflation picked up in July as the cost of gasoline and housing rose, raising the possibility the Federal Reserve will hold back from rate cuts in the near future.
The US consumer price index (CPI) picked up to 1.8 per cent from 1.6 per cent in June, and beat predictions of 1.7 per cent price growth.
Month on month, price inflation excluding the volatile energy and food sectors rose 0.3 per cent in July after the same rise in June. Economists had predicted a 0.2 per cent increase.
Higher gasoline and housing costs were the main drivers of the growth of the all-sector inflation gauge, the US Labour Department said.
“With global crude oil prices since dropping back, that move will probably be reversed in August,” said Andrew Hunter, senior US economist at Capital Economics.
The rise might scupper the chances of President Donald Trump getting the deeper interest rate cut he desires.
Neil Wilson of trading platform Markets.com said: “The CPI numbers could well drag on expectations for the Fed to imminently cut rates as aggressively as the market expects.”
The Fed has a target of a two per cent inflation rate which it thinks is optimal for economic growth. It cut interest rates at its meeting last month down to 2.25 per cent but Trump called for them to be lowered further.
Trump has repeatedly claimed the US has “very low” inflation, which he says leaves the Fed free to cut rates. The President seemed not to believe today’s statistics, tweeting: “Prices not up, no inflation.”
Yet the rise in prices could provide ammunition to the Fed if it wishes to hold off on rate cuts for the time being.
Wilson said that if the Federal Reserve does decide to cut rates further, “they have to lay their cards on the table that this about one thing now: maintaining the expansion, aka, pumping the bubble”.
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