US inflation grew at a slower pace than expected in July, according to the latest government figures, easing pressure on the Federal Reserve to deliver another super-sized interest rate hike.

Consumer prices jumped by 8.5% in July compared with a year earlier, down from the 9.1% year-on-year jump in June.

On a monthly basis, prices were unchanged between June and July, for the first time in more than two years.

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Following the inflation news, traders slashed bets that the Federal Reserve would deliver a third consecutive 75-basis-point hike.

A 50-basis-point rise is now widely expected when the central bank meets in September.

It has indicated that it will need to see several monthly declines in inflation growth before letting up on its aggressive monetary policy tightening.

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Food and rents surge but fuel prices fall

Food inflation remained elevated in July – up 1.1% after climbing 1% in June – and rents surged.

But there were encouraging falls elsewhere – in fuel and in commodities such as corn, wheat, and copper.

The supply chain problems seen after the worst days of the COVID-19 pandemic are also easing.

The news will be welcomed by US President Joe Biden, whose approval ratings had been hurt by the surging inflation, posing a big threat to his Democratic Party as the November congressional elections approach.

Another positive sign for Mr Biden – and the US economy – is that people’s expectations for future inflation have fallen, according to a recent survey by the Federal Reserve Bank of New York.

This may be due to the fall in fuel prices, something that is very noticeable for consumers.

Inflation expectation can be self-fulfilling – if people believe it will rise, they are more likely to take steps such as demanding more pay.

This can send prices higher, increasing inflation, with companies then having to raise prices to offset higher wages.