The US consumer price index (CPI) climbed 2.9% year-on-year in July, down a notch from 3.0% in June which was also the market estimate. This marked the lowest inflation rate in the US since March 2021, when inflation started its upswing which saw it move as high as 9.1% in June 2022. Notably, headline CPI has slowed for a fourth consecutive month. On a monthly basis, CPI rose 0.2%, in July, in line with the market estimate and up from -0.1% in June. Almost all of the monthly increase was due to higher shelter costs.

Core CPI, which excludes food and energy and is closely watched the Federal Reserve, eased to 3.2% in July, just below the June reading of 3.3% which was also the market estimate. Monthly, core CPI rose 0.2%, above the June gain of 0.1% and in line with the market estimate.

Fed on Track to Cut, but by How Much? 

Today’s data confirms expectations of a slowdown in US inflation and has boosted market expectations of a 50-basis point cut when the Fed meets next on September 18. The markets have priced in a 50-basis point cut at around 60% and a quarter-point cut at 40%.

The likelihood of a 50-point reduction has soared in recent weeks, as the US has posted weaker-than-expected data which triggered a meltdown in the global markets last week. The Fed is virtually certain to deliver an initial rate cut next month, with the only question being the size of the cut. This key question could remain unanswered right up to the rate decision announcement.

US Dollar Shrugs After Inflation Report 

Today’s inflation report was within expectations and the response of the US Dollar has been muted, with small losses against the major currencies.

The EUR/USD currency pair rose 0.15% following the inflation report and the GBP/USD currency pair rose 0.10%. Other major currencies also posted small gains against the US Dollar.

Stock Markets Show Little Reaction in Early Trading 

The US stock markets showed little reaction to the inflation report.

The Nasdaq 100 Index has edged lower by 59 points (0.34%) at 17,142 points.

The S&P 500 Index is almost unchanged, down 4 points (0.08%) at 5439 points.

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