WASHINGTON - US inflation eased slightly in July, potentially taking pressure off the Federal Reserve to hike interest rates sharply while bringing a much-needed boost to President Joe Biden just months before crucial midterm elections.
With energy costs dropping in recent weeks, the consumer price index dipped to an annual rate of 8.5 percent last month, the Labor Department reported, lower than markets were projecting.
Fueled by aggressive consumer spending of pandemic savings, global supply chain snarls, domestic worker shortages and Russia's war on Ukraine, inflation soared 9.1 percent on-year in June, the highest in 40 years.
But the CPI was unchanged compared to June, a dramatic decline from the big increase in the prior month and defying expectations of a modest rise.
And when volatile food and energy prices are excluded from the calculation, the so-called core CPI rate rose just 0.3 percent -- the smallest in four months, according to the report.
Economists caution against taking too much solace from a single good report, and they worry that the inflation slowdown linked to the drop in gasoline prices could be outweighed by rising rent and real estate prices.
The question now facing Washington is whether it will be possible to bring inflation down without plunging the world's largest economy into recession, after two quarters of economic contraction in the first half of the year.
In a bid to tamp down inflation, the Fed has already hiked the interest rate four times to a range of 2.25 to 2.5 percent, including two consecutive 75-basis-point increases.