Consumer price growth slowed as expected in the United States last month, keeping the Federal Reserve on a heading toward easing policy in September. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index – with highly-volatile food and energy prices excluded – rose 3.2 percent in July from the same period last year, and climbed 0.2 percent on a month-over-month basis. This was precisely aligned with consensus estimates among economists polled by the major data providers ahead of the release.

On a headline all-items basis, prices climbed 2.9 percent on a year-over-year basis, down from the 3.2 percent pace set in June, and were up 0.2 percent from the previous month. Americans paid the same prices for energy on a month-over-month basis, with higher electricity and natural gas costs offsetting a modest decline in the gasoline category. The shelter sub-index—long the biggest contributor to overall inflation pressures—climbed 0.4 percent, with “owners equivalent rent” – a largely-theoretical measure – increasing 0.4 percent.

Treasury yields are up slightly across the curve as bets on an even bigger deceleration in inflation are disappointed, but market-implied odds still marginally favour a jumbo-sized half-percentage-point rate cut in September. The dollar is trading sideways, equity futures are unchanged and risk-sensitive currencies are holding onto yesterday’s advances in the foreign exchange markets.

Tomorrow’s retail sales and industrial production numbers could cast today’s print in a slightly different light, but we think Fed Chair Jerome Powell remains likely to provide data-conditional easing guidance when he steps up to the microphone in Jackson Hole, Wyoming next week. With inflation subsiding and a wide range of economic indicators pointing to slowing momentum in consumer spending and labour markets, the central bank’s current policy settings—arguably at the most restrictive levels since the run-up to the 2008 global financial crisis—look increasingly inappropriate. Against this backdrop, the dollar should face stronger headwinds – at least until weakness spreads to the rest of the global economy.