US July CPI Matches Forecasts as Case for Fed Rate Hike Weakens

Up 3.4% from a year earlier

Odds of a September rate hike fall to 36% from 47%

US consumer prices rose 0.1% in July from a month earlier, adding to signs that inflation is easing. As price pressures driven by energy costs earlier this year continue to cool, concerns about another Federal Reserve rate increase next month have also receded.

The Bureau of Labor Statistics said the consumer price index rose 0.1% in July from the previous month and 3.4% from a year earlier, matching market expectations. The annual rate slowed from 3.5% in June.

Core CPI, which excludes volatile food and energy prices, rose 0.2% from a month earlier, slightly faster than June's flat reading. From a year earlier, it increased 2.5%, down from 2.6% in June. Lower energy prices helped moderate the headline figure after falling 5.7% in June and another 1.5% in July from the previous month. The Wall Street Journal said a monthly increase of 0.2% or less is consistent with the Fed's 2% inflation target.

Cooling inflation could also ease pressure on US monetary policy. CME FedWatch showed the probability of a rate hike in September fell to 36.1% from 47.8% after the CPI report. CPI is one of the Fed's main gauges for assessing inflation. With July nonfarm payrolls coming in weaker than expected last week and CPI matching estimates, the case for another rate increase has weakened.

Bloomberg reported that "inflation alarm bells aren't ringing" and that Fed Chair Kevin Warsh can breathe a little easier for now. Still, caution remains, as the same trend would need to continue in the August CPI report due before the September Federal Open Market Committee meeting.

US stock-index futures rose across the board immediately after the release. S&P 500 futures gained 0.4%, while Nasdaq 100 futures climbed 0.9%. The yield on the 10-year Treasury note edged lower from around 4.65%.

Kim Dong-hyun, Hankyung.com reporter, 3code@hankyung.com