Oil eases following latest US inflation data

The front-month ICE Brent contract shed $0.93/bbl to settle at $79.76/bbl on Wednesday after US CPI data showed an increase in growth rate last month.

PHOTO: An oil pump against the background of the US flag. Getty Images

Inflation in the US, measured by the change in the Consumer Price Index (CPI), increased 0.2% last month after falling 0.1% in June, the US Labor Department's Bureau of Labor Statistics (BLS) reported on Wednesday.

Higher housing-related costs were among the key drivers of inflation in July, according to the report.

The annual US CPI reading for July matched market expectations, according to several analysts. “The US CPI was in line with expectations, keeping the market on track to expect the Fed to cut rates in September,” analysts at Saxo Bank noted.

However, the CPI index declined to 2.9% on a year-on-year basis in July, down from 3% on a year-on-year basis in June. The inflation reading is gradually approaching the US Federal Reserve's 2% target, which raises expectations of an interest rate cut in September.

Lower interest rates in the US can boost demand, making dollar-denominated commodities like oil cheaper for holders of other currencies.

The US Fed is scheduled to discuss rate cuts on 17 and 18 September.

“Given the current inflation dynamics and growth outlook, the Fed might lean towards a more cautious 25bps [25 basis points] rate cut at the next meeting,” Charu Chanana, head of FX strategy at Saxo Bank remarked.

By Aparupa Mazumder

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