Key facts
- US inflation eased to 3.4% year-over-year in July.
- US inflation was 3.5% year-over-year in June.
- Energy and grocery costs softened in July, contributing to lower US inflation.
- Core inflation ticked up in the US in July.
- US prices remain higher than pre-conflict levels.
- The Federal Reserve is considering interest rate decisions for its mid-September meeting.
- A weak jobs report was released in the US.
- UK annual wage growth, excluding bonuses, rose to 3.5% in the second quarter.
- UK grocery inflation fell to 2.1% in the four weeks to August 9.
- UK grocery inflation was last at this level in October 2024.
- Most economists expect the Bank of England to hold interest rates steady.
- The Bank of England is expected to hold rates for the remainder of the year.
US consumer prices rose 3.4% in July compared to the previous year, a marginal decrease from June's 3.5% annual rate. This easing was primarily attributed to a softening in energy and grocery costs. Despite the overall decrease, core inflation saw a slight uptick, and prices remain significantly higher than pre-conflict levels, complicating the Federal Reserve's monetary policy decisions regarding interest rates. The Federal Reserve is currently weighing its options for the mid-September meeting, with officials divided on the future path of interest rates. This decision is further complicated by a recent weak jobs report, which contrasts with the slightly more benign inflation data.
Analysts had anticipated that a decrease in energy prices, particularly gasoline, would contribute to a cooler overall inflation reading for July. This expectation was influenced by a volatile month in oil markets, which saw fluctuations linked to the ongoing conflict with Iran. In the United Kingdom, annual wage growth, excluding bonuses, increased to 3.5% in the second quarter, surpassing economists' forecasts. This development occurred despite persistent inflation risks.
Further relief for UK households facing high living costs comes from the grocery sector. Grocery price inflation in the UK fell to 2.1% in the four weeks ending August 9. This marks the lowest point for grocery inflation since October 2024, according to data from Worldpanel by Numerator. Despite these inflation risks, a majority of economists polled by Reuters expect the Bank of England to maintain its current interest rates throughout the remainder of the year.