11:28 AM EDT, 08/14/2024 (MT Newswires) -- US consumer inflation rose as expected in July while the annual pace of price growth unexpectedly slowed, strengthening expectations that the Federal Reserve could start easing its monetary policy in September.

The consumer price index increased 0.2% in July after a 0.1% decrease in June, according to the Bureau of Labor Statistics. The latest reading was in line with a Bloomberg-compiled survey. Annually, inflation eased to 2.9% last month, the smallest increase since March 2021. The consensus view was for the annualized metric to remain unchanged at 3% growth.

"With the labor market showing clear signs of cooling and inflationary pressures subsiding, the (Fed) can confidently start to dial back its policy rate in September," TD Senior Economist Thomas Feltmate said in a note.

Markets assume a roughly 57% likelihood for the central bank's Federal Open Market Committee to lower its benchmark lending rate by 25 basis points next month, with the remaining odds in favor of a more aggressive 50-basis-point cut, according to the CME FedWatch tool.

Monthly food price growth remained unchanged in July at 0.2%, while the energy index was flat, the BLS reported. Annually, food prices increased 2.2% and energy rose 1.1%.

Core inflation, which excludes the volatile food and energy components, accelerated to 0.2% in July from 0.1% in June, matching analysts' forecasts. At the annual level, core inflation came in at 3.2%, meeting expectations.

"Despite the uptick in monthly readings for both headline and core inflation, price pressures remained relatively subdued in July," Feltmate said.

Shelter cost growth accelerated to 0.4% sequentially from 0.2% in June, accounting for nearly 90% of the monthly increase in the July headline index, the BLS report showed. Annually, shelter prices rose 5.1%.

Shelter costs have a smaller impact on core personal consumption expenditures inflation, which is the Fed's preferred inflation metric, according to Feltmate.