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Is U.S. Inflation Actually Cooling Quicker Than Expected?

  • Inflation in the United States appears to be cooling quicker than experts expected.
  • The Federal Reserve’s series of steep rate hikes are quashing price pressures.
  • A sharp reduction in petrol prices pushed overall inflation beneath expectations.

US inflation is cooling much quicker than experts are betting in a sign the Federal Reserve’s series of steep rate hikes are quashing price pressures. Prices climbed 8.5 percent in the world’s biggest economy last month, down from a 40-year high 9.1 percent, according to the Labor Department.

Wall Street had forecast headline consumer price index inflation to have dipped to 8.7 percent in July.

Fed chair Jerome Powell and the rest of the federal open market committee have embarked on the quickest rate hike cycle since the early 1980s to tackle the inflation surge.

US borrowing climbs have climbed 225 basis points since March, including two successive 75 basis point rate hikes.

The return of soaring inflation has forced the Fed to breach recent monetary policy convention. Rates have been ultra-low since the financial crisis.

A sharp reduction in petrol prices pushed overall inflation beneath expectations.

Related: OPEC+’s July Production Survey Shows Another Big Miss

Analysts had warned Powell and co may hoist rates a whole percentage point at its next meeting on 21 September if today’s figures produced an upside shock, something they have not done since announcing rate moves in 1994.

While price pressures are curbing, Fed officials in recent weeks have signaled more rate rises are coming.

UK and US interest rates

The Fed has raced ahead of the Bank of England in its rate hike cycle

Core inflation, which strips out products that are subjected to wild price swings and is seen as a more accurate measure of price pressures, also dipped below Wall Street forecasts, dropping to 5.9 percent in July.

The world’s biggest central banks have broken free of ultra-stimulative policy that has propped up the global economy since the banking crisis in 2008 due to inflation surging high above their respective targets.

The Bank of England last week lifted borrowing costs 50 basis points for the first time in nearly 30 years, taking them to 1.75 percent, a 14 year high.

On the Continent, the European Central Bank last month marked its first rate hike in more than a decade with a shock 50 basis point move.

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Inflation in the UK and eurozone is running 9.4 percent and 8.9 percent respectively, both historic highs.

By City AM

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