US CPI inflation falls short of forecast for July

The rate of US inflation decreased in July, with both the headline and core consumer prices index (CPI) increasing 0.1% month-on-month, short of consensus forecasts for a 0.2% rise.

Year-on-year figures were in line with expectations, however, with headline CPI up 0.2%, and up from the 0.1% annual growth recorded in June.

Core CPI, which strips out more volatile data such as food and energy prices, was up 1.8% year-on-year, in line with expectations and last month's figure.

Core prices were held back by the biggest US air fare drop since 1995.

Meanwhile, a 2.2% rise in average weekly earnings was also revealed, up from a 1.8% rise in June.

The muted gain in both headline and core CPI will "certainly give the Fed pause for thought in whether to raise interest rates or not at the next FOMC meeting in mid-September", said Paul Ashworth, chief US economist at Capital Economics.

"On balance, we still think the Fed will go ahead and raise rates in response to the further improvement in labour market conditions. But the decision is finely balanced. With price inflation and wage growth still muted, a case can also be made for waiting."

Barclays economists said: "Ongoing increases in CPI inflation should give members of the FOMC confidence that underlying inflation trends are positive, as the trends will also boost headline PCE, their preferred measure of inflation.

"We believe these recent improvements should outweigh risks to the forecasts, driven by the renewed decline in commodity prices and the recent surge in the value of the dollar."

PCE inflation will be published on 28 August.