US inflation dropped to 8.5% in July from its previous figure of 9.1%, in some desperately needed good news in the gloomy market landscape.
Inflation came in below the 8.7% analyst consensus as gas prices fell across the Atlantic, dragging inflation down, albeit still within a decades-long high.
The gas index fell 7.7% last month, offsetting a 1.1% price rise in food and 0.5% price growth in shelter, while the energy index decreased 4.6%. However, the index for electricity climbed.
The Bureau of Labour Statistics reported all items except for food and energy rose 5.9% year-on-year.
Meanwhile, the energy index spiked 32.9% over the last 12 months, while food saw the largest increase since May 1979 at 41.6%.
US Federal Reserve interest rates
The news sent markets into a wave of celebration as investors looked to a more optimistic US Fed rates hike in light of the positive inflation figures.
The FTSE 100 gained 0.1% to 7,497.2, while the Dow Jones increased 1.5% to 33,295.5, the NASDAQ climbed 2.2% to 12,776.3 and the S&P 500 rose 1.7% to 4,194.2.
“The key question that markets have been grappling with over the last month is whether the Fed will deviate from its current tightening plans ─ the so called ‘Fed pivot’. Falling commodity prices, deteriorating consumer confidence, and slowing growth could tempt the Fed to take its foot off the gas in upcoming meetings,” said Evelyn Partners wealth manager Rob Clarry.
However, Clarry cautioned investors that the Federal Reserve’s decision was unlikely to be swayed by today’s inflation figures.
“[In] our view, the main factors influencing the Fed are the labour market and inflation itself. The US labour market remains tight, which points towards continued inflationary pressures. More importantly, headline CPI remains elevated and, despite today’s fall, remains a long way from target.”
“Meanwhile, the Fed has reiterated that it’s committed to restoring price stability ‘unconditionally.’ These factors point towards the Fed continuing with its plans to further increase interest rates through 2022.”
“More substantial falls in inflation and a softer labour market will probably be required before we get any signs of the Fed changing course.”