Yields fall after soft USA inflation, retail sales data

Yields fall after soft USA inflation, retail sales data”

USA consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation that could diminish prospects of a third interest rate increase from the Federal Reserve this year.

"The slowdown has surprised the Federal Reserve and prompted some senior central-bank officials to question whether further [interest] rate increases are merited in an environment of stubbornly low consumer prices and inflation", MarketWatch said.

While Federal Reserve Board Chair Janet Yellen has noted that core CPI has increased at a slower pace for some months because of special factors that are likely to be reversed, moving inflation upward toward the Fed's 2.0 percent goal, today's CPI release will make it more hard for the Fed to move aggressively on tightening monetary policy in the near-term.

That was shy of economists' forecasts calling for CPI to remain unchanged at 1.7%.

At the "core" level, which strips out the more volatile food and energy components, CPI rose by 0.1% on the month (consensus: 0.2%) and at an annual pace of 1.7% (consensus: 1.7%). The core CPI increased 1.7 per cent year-on-year after a similar gain in May. That puts it below the 2% target set by the Fed.

Americans also cut back on spending at restaurants and bars, as well as on hobbies.

USA retail sales also underperformed, falling for a second straight month in June.

Excluding automobiles, gasoline, building materials and food services, retail sales slipped 0.1 percent last month after being unchanged in May. The rate fell to 1.6% in June from 1.9% in May, missing the 1.7% expected by economists.

The PPI reading is in line with other inflation indicators, including the consumer-price index and the Federal Reserve's preferred inflation gauge, personal-consumption expenditures (PCE), that show inflation is tapering off after rising steadily in 2016 and early 2017. Last month, auto sales edged up 0.1 per cent after rising 0.9 per cent in May.

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