Is US inflation actually cooling off faster than expected?

US inflation is cooling much faster than experts are betting, a sign that the Federal Reserve’s series of steep rate hikes is wiping out price pressures. Prices rose 8.5 percent last month in the world’s largest economy, down 9.1 percent in 40 years, according to the Labor Department.

Wall Street had predicted that consumer price index inflation would fall to 8.7 percent in July.

Fed Chair Jerome Powell and the rest of the federal open market committee have embarked on the fastest rate hike cycle since the early 1980s to address the inflation spike.

US lending has risen 225 basis points since March, including two consecutive 75 basis point rate hikes.

The return of rising inflation has forced the Fed to breach the recent monetary policy convention. Since the financial crisis, rates have been extremely low.

A sharp drop in gasoline prices pushed overall inflation below expectations.

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Analysts had warned Powell and co that they could raise interest rates by a whole percentage point at their next meeting on Sept. 21 if today’s numbers trigger an upward shock, something they haven’t done since announcing interest rate moves in 1994.

As price pressures ease, Fed officials have signaled more rate hikes in recent weeks.

UK and US Interest Rates

The Fed has led the Bank of England in its rate hike cycle

Core inflation, which removes products subject to wild price swings and is seen as a more accurate measure of price pressures, also fell below Wall Street’s forecasts, falling to 5.9 percent in July.

The world’s largest central banks have broken away from the ultra-stimulative policies that have supported the global economy since the banking crisis in 2008 as inflation surged well above their respective targets.

The Bank of England last week raised borrowing costs by 50 basis points for the first time in nearly 30 years, bringing them to 1.75 percent, the highest point in 14 years.

On the mainland, the European Central Bank marked its first rate hike in more than a decade last month with a shocking move of 50 basis points.

Inflation in the UK and the Eurozone is 9.4 percent and 8.9 percent respectively, both historic highs.

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