U.S. inflation ticked modestly higher in July, but a key reading of core consumer prices eased on an annual basis, suggesting that the Federal Reserve's interest-rate hikes are pushing down domestic inflation pressures.
The Bureau of Labor Statistics reported Thursday that the headline consumer price index for July was estimated to have risen 3.2% from a year earlier. That's modestly faster than the 3% pace recorded in June and just inside the Wall Street consensus forecast of a 3.3% advance.
Annual inflation peaked at a four-decade high of 9.1% in June of last year.
On a monthly basis, inflation was up 0.2%, the BLS said, compared with a 0.2% reading in June and the Wall Street forecast. Monthly inflation peaked at 1.3% in June of last year.
So-called core inflation, which strips out volatile components such as food and energy prices, rose 0.2% on the month and 4.7% on the year, the report noted, with the annualized reading coming inside Wall Street forecasts of 4.8%.
'Fed Has Cover to Pause Rate Hikes': Quilter Cheviot
“While a rise in the US inflation rate was widely predicted due to seasonal factors, the fact it came in fractionally under expectations will likely buoy markets thinking the Federal Reserve has enough cover now to hit the pause button on the interest rate rises and allow what has been done to date take effect," said David Henry, investment manager at Quilter Cheviot.
"The fact of the matter is that the Federal Reserve is in an enviable position that it has inflation down near target, if not quite there yet, and an economy that continues to defy the odds and produce results," he added. "It will be a while before we can declare a ‘soft landing’ as achieved as things change very quickly, but the signs are looking positive."
U.S. stocks were modestly higher following the data release with futures tied to the S&P 500 priced for a 32-point opening bell gain and those linked to the Dow Jones Industrial Average gaining 220 points. The tech-focused Nasdaq was up 160 points.
Benchmark 10-year Treasury note yields were marked 4 basis points lower at 3.976% while 2-year notes were pegged at 4.751%, around 5 basis points lower from prior to the data release.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.43% lower at 102.050.
The Fed lifted its benchmark lending rate to between 5.25% and 5.5% in July, the 12th hike in 16 months, and warned that stubborn inflation pressures would likely require more increases between now and the end of the year.
CME Group's FedWatch is now pricing in only a 7.5% chance that the Fed will lift the benchmark federal-funds rate by a quarter-point, to between 5.5% and 5.75%, when it meets next month in Washington. The odds of a hike in November were trimmed to around 26.5%.
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