U.S. core inflation eases for fourth month, paving the way for Fed rate cut

U.S. underlying inflation eased for a fourth straight month in July, keeping the Federal Reserve on track to cut interest rates next month.

The so-called core consumer price index — which excludes food and energy costs — rose 3.2% in July from a year ago, still the slowest pace since early 2021. The monthly measure rose 0.2%, a slight improvement from June’s surprisingly low reading, figures from the Bureau of Labor Statistics showed Wednesday.

Economists view the headline gauge as a better gauge of underlying inflation than the overall CPI. That measure also rose 0.2% from a month earlier and 2.9% from a year ago. The BLS said nearly 90% of the monthly increase was due to housing, which accelerated starting in June.

Inflation is still broadly on a downward trend as the economy slowly shifts into a lower gear. Combined with a weaker labor market, the Fed is widely expected to start cutting interest rates next month, while the size of the cut will likely be determined by more incoming data.

Ahead of the September meeting, officials will get more inflation readings and another jobs report — which will be heavily scrutinized after disappointing July numbers helped trigger a global market sell-off and stoked recession fears.

A sustained decline in goods prices for most of the past year has provided some relief to consumers. So-called essential goods prices, which exclude food and energy commodities, have fallen the most since the start of the year. On an annual basis, they have fallen the most since 2004.

A separate report released Wednesday, which combines inflation figures with recent wage data, showed that real earnings growth slowed in July from a year ago.