Minor US inflation increase unlikely to hinder Fed rate cut in September

US inflation likely picked up modestly in July but not enough to deter the Federal Reserve from a widely anticipated interest-rate cut next month.

The consumer price index on Wednesday is expected to have risen 0.2 per cent from June for both the headline figure and the so-called core gauge that strips out food and energy. While each would be an acceleration from June, the annual metrics should continue to rise at some of the slowest paces seen since early 2021.

The recent moderation in price pressure has further emboldened the confidence of Fed officials that they can begin to reduce borrowing costs, refocusing attention on the labour market, which is more broadly slowing.

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The July jobs report showed that US employers scaled back hiring markedly, and the unemployment rate rose for a fourth month, triggering a key recession indicator and helping fuel a global stock market selloff.

If CPI comes in as expected, it would indicate a downward trend to inflation, with economists reckoning that a slight pickup is due after June's surprisingly low reading, largely stemming from what is called core services excluding housing—a major category watched by policymakers. Some forecasters are also flagging an upside risk to goods prices, given higher shipping costs.

But the long-awaited slowdown in shelter costs that began in June probably continued. That category makes up about a third of the overall CPI and is a large determinant of the broader inflation trend.

The producer price index — due a day before the CPI — will be watched for categories that feed through to the Fed's preferred inflation gauge, the personal consumption expenditures price index.