Wall Street surges as US inflation cools off

US STOCK markets roared after inflation data was lower than expected, raising hopes that price rises had peaked.

The Dow Jones, a key index on Wall Street, surged 1.6pc to its highest level in two months after figures showed inflation was running at 8.5pc last month, down from the four-decade high of 9.1pc recorded in June and below what analysts had predicted.

The figure is in stark contrast to the UK where inflation hit 9.4pc in June, and is expected to hit 13.3pc later in the year.

The lower-than-expected reading also boosted the S&P 500 index – up 2.1pc – and the tech-heavy Nasdaq index – up 2.9pc.

‘Inflation has been expected to peak over the summer for some time, so it was reassuring for markets that there are clear signs that this looks to be happening,’ said Oliver Blackbourn, a portfolio manager at asset management group Janus Henderson.

The decline was driven by a sharp drop in petrol prices, which fell 7.7pc last month as global oil prices eased back after surging following Russia’s invasion of Ukraine.

But food prices continued to increase sharply by 10.9pc in July, the largest rise in 43 years, potentially signalling more pain for lower-income households who spend more of their money on essentials such as food and energy. The steeper-thanexpected drop in inflation is expected to reduce pressure on the Federal Reserve, the US central bank, to keep aggressively raising interest rates despite the figure remaining well above its 2pc target.

Before the new data, markets had been expecting the Fed to raise rates to 3.6pc by the end of the year, its highest level in over a decade, but this dropped to 3.4pc following the better-than-expected inflation figures.

Bets that the central bank will hike interest rates by 0.75pc at its next meeting in September also fell back.

But Rob Clarry, investment strategist at wealth manager Evelyn Partners, said more substantial falls in inflation would be needed before the US central bank changed its current course.

He added that the ‘tight’ US jobs market could continue to push up inflation as firms raise wages to attract workers.

‘While today’s inflation figure is likely to be welcomed by investors, the data does not change our view that US interest rates will continue to increase,’ he said.

The fall in inflation will also be a boon for Joe Biden’s administration, which this week scored a crucial victory after the Inflation Reduction Act, a £604bn package of measures aimed at lowering healthcare costs and raising taxes on corporations, was passed by the US Congress.