The Price Still Isn't Right for Consumers

The Price Still Isn't Right for Consumers

Economists had expected prices to rise by 0.2%.

The data "points to ongoing slow-mo growth that doesn't do a thing to threaten more intense Fed action or provide solace to the bond bears out there", said David Ader, chief macro strategist, at Informa Financial Intelligence. Though this isn't the Fed's preferred inflation measure, it nonetheless shows a weakened inflation outlook.

After raising benchmark interest rates twice so far in 2017, the Fed had been expected to increase once more before the end of the year. Core PPI also dropped, by 0.1% against predictions for a rise of 0.2%. The weakness in USA inflation has not yet waned.

US inflation was subdued in July, held down in part by weakness in hotel rates, which perpetuates a soft trend that is puzzling Federal Reserve officials who expected an improving economy to be pushing consumer prices up at a faster rate by now.

The Fed's favoured measure of inflation lags even further behind, with the PCE measure now registering an annual rate of 1.4% in June.

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The Fed's two goals are to pursue interest-rate policies that foster maximum employment and price stability. They are now down 13.3 percent over the past 12 months, the biggest 12-month decline in cell phone charges in 16 years. Prescription drug prices also dropped back earlier this year, partly as a correction to strong gains in 2016.

The euro was up 0.45 percent at $1.1823 after Morgan Stanley raised its forecasts for the currency, predicting it would hit $1.25 early next year.

Despite the modest gain in consumer prices, which came on the heels of a drop in producer prices in July, many economists continue to share the Fed's conviction that transitory factors were holding back inflation. Headline consumer prices have averaged less than 2% - 1.8% to be exact - since the broad stabilisation in inflation at lower levels in the late 1990s.

USA 30-year bond yields also fell to a six-week trough of 2.769 percent. Core PCE inflation has average only 1.7% an annual inflation on this basis has been below 2% for around 75% of the time. As of Friday morning, market expectations for a December rate hike were just 44 percent, according to the CME Group's FedWatch tool.

In addition to the low unemployment rate, Dudley said the U.S. dollar is weakening "so that should have some consequences for import prices", which in turn will push up depressed goods prices.

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