USA inflation still tame as consumer prices rise less than expected

  • USA inflation still tame as consumer prices rise less than expected

USA inflation still tame as consumer prices rise less than expected

It appears that inflation is continuing to decelerate in spite of an unemployment rate that is at a 16-year low. "[Fed Chair Janet] Yellen said the 0.1 percent drop in core CPI in March was a one-off due to your cheaper cell phone plans, but what happened to the four months since March?" In the past three months, the core inflation was up a soft 1.2 percent annual rate.

Perhaps even more important than the level is the direction of change.

"Carefully monitor" is code for reviewing its intention to lift rates unless inflation rises.

July inflation data that came out generally weaker than expected on Friday caused markets to decrease the odds that the Federal Reserve (Fed) will hike interest rates once again this year. Excluding food and energy prices, the index was up 1.5 percent. Owners' equivalent rent of primary residence rose 0.3% after advancing by the same margin in June. What matters is the overall trend in prices, which is perhaps best captured by the "trimmed mean" estimate of PCE inflation in the chart above. Even if you use an even more focused core PPI that removes trade services (on top of food and energy), the PPI was still only flat at a 0.0% reading in July's month-over-month report.

Year-on-year CPI increase in July, from 1.6 per cent in June.

The U.S. consumer price index edged up 0.1 percent last month after being unchanged in June.

Meyer, who said that though her expected 0.2 percent rise in the core index wouldn't be a "dramatic swing" upward, "a number of categories could bounce a little bit higher from the past few months of showing considerable weakness".

The cost of new motor vehicles fell 0.5%, the biggest drop since August 2009 and the sixth consecutive monthly decline. Used auto prices have also weakened due to a glut of stock on the market. It seems that markets were geared for the bad news.

The Fed targets consumer price inflation as measured by the Personal Consumption Expenditures price index, but some of the factors are the same across all inflation measures.

This is one reason why concerns over a deflationary spiral are silly.

"Taken in combination with yesterday's weaker-than-forecast producer price report, it is clear there is no need for imminent policy tightening", Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto, said in a note. In contrast, the index for grains jumped 17.1 percent.

US CPI and core CPI rose only 0.1% m/m, below expectations.

In short, the July data suggest that inflation is likely slowing from its rate earlier in 2017.