US Government Bonds Strengthen After Soft Inflation Reading

Consumer prices in the US came in unchanged in the month of June, denting expectations the Federal Reserve will again raise interest rates this year.

Data from the Labor Department showed that consumer price index was flat in June after edging down by 0.1% in May. The central bank usually tries to aim for 2% core inflation or less.

In the 12 months through June, the CPI increased 1.6 per cent - the smallest gain since October 2016 - after rising 1.9 per cent in May. The core CPI increased 1.7 per cent year-on-year after a similar gain in May. An additional 2-3 rate hikes are likely in 2018. The dollar's decline was broad-based, falling to a 10-month low against the British pound and a 15-month low against the Australian dollar. Core prices had been expected to rise by 0.2%. Economists had expected the index to edge down to 95.0.

In June, gasoline prices fell 2.8 per cent, decreasing for a second straight month.

Industrial production rose for the fifth straight month in June, increasing 0.4 per cent on a continued rise in oil and gas drilling and coal mining. The cost of cellular phone services fell 0.8 percent, extending their decline amid price competition among service providers.

There were also decreases in airline fares and prices for apparel, household furnishings, new motor vehicles, and used cars and trucks. Economists polled by MarketWatch had forecast an 0.1% increase.

Americans also paid more for hospital visits and prescription medication, as well as motor vehicle insurance. Overall retail sales fell 0.2 per cent for the month to US$473.5 billion (S$651.7 billion), a surprise to analysts who had forecast a 0.1 per cent rise. Food and beverage stores were down 0.4%, department stores were down 0.7% and restaurant sales were down 0.6%.

But excluding vehicle sales and patrol, retail sales still contracted by 0.1 per cent.

Other US data releases today pertained to June retail sales, a measure acting as a proxy for consumer spending.

"There was widespread price weakness in components stretching far beyond cell phone plans and prescription drugs", he said in a research note, pointing to the main factors Yellen has cited. However, that could negatively impact third-quarter GDP. The readings came out weaker than economists had projected.

The University of MI is due to release its preliminary report on consumer sentiment in the month of July. It has declined from a high of 98.5 in January.

Earlier this week Federal Reserve Chair Janet Yellen signaled in her congressional testimonies that the Federal Open Market Committee's rate hikes may already be closer to an end.

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