US inflation slams bonds, lifts shares - CMC Markets

Galtero Lara
Julio 12, 2019

However, the report did little to adjust market participants' expectations for the Federal Reserve to cut benchmark interest rates at the end of July, after Fed Chair Jerome Powell in two days of congressional testimony reiterated central bankers' concerns of persistently below-target inflation. The consumer price index excluding the volatile food and energy components rose 0.3% last month, the largest increase since January 2018, after four straight monthly gains of 0.1%. "This argues against aggressive monetary stimulus from the central bank", said Chris Rupkey, chief economist at MUFG in NY.

Rising prices for housing, used cars and medical care helped drive United States consumer inflation higher last month despite flat or falling costs for food and fuel, the government reported Thursday. The so-called core CPI was boosted by strong increases in the prices for apparel, used cars and trucks, as well as household furnishings. In the 12 months till June, the core CPI climbed 2.1 per cent after advancing 2 per cent in May.

Overall CPI edged up 0.1% last month, held back by cheaper gasoline and food prices.

Some statistics of the June US CPI was comparable to May's CPI with food prices staying steady at 0.3% in May and in June.

"We will be paying attention to subcategories, such as portfolio management and investment advice, health-care services, and air transportation, that are directly used by the BEA in their calculation of the PCE deflator", Ryans said.

The all items index increased 1.6 percent for the 12 months ending June, a smaller increase than the 1.8-percent rise for the period ending May.

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Federal Reserve policy, which in recent history has focused on core inflation measured by the core PCE Price Index, will see that the more familiar core CPI is now at the PCE target range of 2 percent.

CPI and PPI are not the Fed's preferred measures of underlying inflation in the US economy - that designation is reserved for the core personal consumptions expenditures (PCE) price index, released by the Bureau of Economic Analysis (BEA).

Will inflation statistics impact the Fed?

He also said that "there is a risk that weak inflation will be even more persistent than we now anticipate".

Economists polled by Reuters had forecast the CPI to be unchanged in June and rising 1.6 per cent year-on-year. Economists expect the tightening labour market, which is lifting wages, and the imposition in May of more tariffs on Chinese goods to gradually push inflation towards its 2% target. Food consumed at home fell 0.2 per cent.

The rent sector dipped 0.1 per cent. In May, prices rose by 1.4% annually.

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