US inflation increased slightly for the first time in 13 months, but analysts said it would not be enough to provoke the Federal Reserve into hiking interest rates once more.
The headline consumer price index (CPI) rose to 3.2 per cent in the year to July, according to official statistics out today, up from 3.0 per cent last month but marginally lower than market expectations. Month on month, prices increased 0.2 per cent.
A rise in rental costs was by far the largest contributor to the monthly increase, accounting for over 90 per cent of the increase. The rising cost of vehicle insurance also contributed, the Department of Labor said.
Energy prices increased by 0.1 per cent, down from a 0.6 per cent increase in June.
Core inflation, which strips out more volatile components such food and energy prices, fell to 4.7 per cent from 4.8 per cent last month. This came thanks to falling used car prices and airline fares. On a monthly basis, core inflation climbed 0.2 per cent.
Analysts at Pantheon Macroeconomics highlighted the fall in core goods specifically, excluding autos, fell for the first time in this year – a trend they expect to continue.
“The story here is the healing of supply chains after they were shredded during Covid and the shift in spending away from goods, which is reducing manufacturers’ input costs and prompting retailers and wholesalers to reduce margins from their historically high levels,” they wrote.
Experts argued that the figures should give the Fed confidence as rental costs are likely to fall fast over the coming months.
“We know shelter costs are a lagging indicator and the collapse in measures of new rent inflation demonstrate that over the next 12 months, shelter inflation will not just fall back to more normal rates, but might even drop below the pre-pandemic average,” Paul Ashworth, chief North America economist at Capital Economics, said.
“There’s nothing here to suggest the Fed needs to push ahead with further interest rate hikes this year,” Ashworth said.
US inflation has come down far more rapidly than many economies in Europe having hit a peak rate of 9.1 per cent in June last year.
Inflation in the US was fuelled by rampant consumer spending and a strong labour market rather than soaring energy prices as the US has a large domestic energy market.
In its most recent meeting, the Federal Reserve hiked rates by 25 basis points, bringing the federal funds rate to between 5.25 per cent and 5.5 per cent.