CPI and PPI Easing Saps Rate-Hike Expectations
The latest US inflation data has provided some relief for financial markets, with both consumer and producer price pressures showing signs of moderation.
The Consumer Price Index (CPI) increased by 3.4% year-on-year in July, down from 3.5% in June and exactly in line with market expectations. Core CPI, which excludes food and energy prices, eased to 2.5% from 2.6% previously.
The combination of softer CPI and PPI readings, alongside a weakening labor market, has reduced expectations for another Federal Reserve rate hike in September. The probability of a 25-basis-point Fed rate hike at the September meeting fell to around 38-39%, from approximately 48% before the report.
The softer CPI reading was particularly positive for gold, as the market is increasingly seeing less justification for another rate hike while simultaneously seeing greater downside risks to economic growth. The PPI delivered an even more noticeable moderation in annual inflation, with US producer prices unchanged month-on-month in July and slowing sharply to 4.7% from 5.5% in June.