After rising steadily for months, the Federal Reserve's preferred inflation index fell 0.1 percent in July 2022 compared to June, the Commerce Department reported -- far lower than economists had projected. It rose just 0.1 percent when food and energy are excluded.
Americans have received relief at the petrol pump in recent weeks, and the report showed energy prices fell 4.8 percent last month, but food prices accelerated 1.3 percent.
Compared to July 2021, the personal consumption expenditures price index slowed to 6.3 percent, and was down to 4.6 percent for the "core" which leaves out volatile food and energy components, the data showed.
Meanwhile, consumers continued to spend, and expenditures increase $23.7 billion or 0.2 percent in the month.
The modest signs of slowing in the world's largest economy and easing price pressures spurred hope in financial markets that the central bank might ease up on its aggressive rate hikes, and perhaps even start to reverse course next year.
But former Bank of England board member Adam Posen called that view "nonsense."
"I think there's wishful thinking on the part of the markets," said Posen, who leads the Peterson Institute for International Economics in Washington.
"Right now there's no debate," he told reporters. "They've got no choice but to hike."
The Federal Reserve, the U.S. central bank, has been aggressively raising interest rates to try to tame high inflation, exacerbated by the surge in global oil prices due to Russia's war in Ukraine as well as ongoing supply chain issues made worse by Covid lockdowns in China.