Inflation in U.S. drops as consumer prices unexpectedly fell in June

U.S. consumer pricesunexpectedly fell and the annual increase was the smallest in ayear, reinforcing views that atrend of dropping inflation was back ontrack in the United States, and drawing the Federal Reserve another step closer tocutting interest rates.

The consumer price index dipped 0.1 per centlast month after beingunchanged in May, the U.S. Labour Department's Bureau of LabourStatistics said on Thursday. It was the second straight month oftame CPI readings, and could help to bolster confidence amongofficials at the U.S. central bank that inflation was cooling.

In the 12 months through June, the CPI climbed threeper centandfollowed a 3.3 per centadvance in May. Economists polled by Reuters hadforecast the CPI ticking up 0.1 per centand gaining 3.1 per centyear-on-year.

In Canada, the annual inflation rate edged up to 2.9 per cent in May an increase from 2.7 per cent in April mostly due to higher prices for services. The numbers in this country for June 2024 are expected on July 16.

The annual increase in consumer prices has slowed from apeak of 9.1 per centin June 2022. The U.S. CPI is running far ahead of themeasures tracked by the Fed for its two per centinflation target. ThePersonal Consumption Expenditures (PCE) price indexes bothincreased 2.6 per centin May.

Fed Chair Jerome Powell has acknowledged the recent improving trend in price pressures, but told lawmakers this weekhe was not yet ready to declare inflation had been beaten, andthat "more good data would strengthen" the case for rate cuts.

A cooling labour market and slowing economy have leftfinancial markets and most economists expecting the Fed to startits easing cycle in September.

The U.S. central bank has maintained its benchmark overnightinterest rate in the current 5.25 per cent to 5.50 per centrange since last July.It has hiked its policy rate by 525 basis points since 2022.

Meanwhile, the Bank of Canada already cut lending rates from five per cent to 4.75 per cent on June 5.