US annual inflation rate slumps despite higher oil prices

The annual US inflation rate, based on the Consumer Price Index (CPI), advanced 3.4% last month, according to data from the US Bureau of Labor Statistics (BLS).

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The year-on-year inflation data represents a decrease from the 3.5% growth seen in June.

Brent crude's price has remained largely elevated despite the soft inflation data, which comes amid renewed hostilities in the Middle East.

The market “moved back toward record territory after July inflation delivered exactly what markets needed… easing some of the pressure around a September Fed hike,” according to SPI Asset Management managing partner Stephen Innes.

Lower interest rates in the US can boost demand growth and make dollar-denominated commodities like oil less expensive for holders of other currencies.

However, on a month-on-month basis, the US inflation rate increased by 0.1% in July, reversing course from the 0.4% decline noted in June.

“Oil is the other wildcard. With Hormuz still unresolved, another sustained rise in crude could quickly rebuild inflation expectations and revive the tightening debate,” Innes added.

The month-on-month data represents a higher inflation reading since the beginning of the Middle East conflict on 28 February.

Notably, the US central bank remains focused on bringing annual inflation down to its 2% target.

By Aparupa Mazumder

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