US consumer prices slipped 0.1 percent in May

Violet Tucker
June 15, 2017

A stripped-down measure of inflation that excludes the volatile food and energy categories rose 0.1% in May.

US retail sales in May recorded their biggest drop in 16 months and consumer prices unexpectedly fell month over month, suggesting inflation pressures are moderating, which could impact further Federal Reserve interest rate increases this year.

The dollar fell to its lowest since the day after last year's election against a basket of major currencies following the release of weaker-than-expected U.S. CPI and retail sales data on Wednesday. "It won't stop the Fed from hiking interest rates later today, but it increases the downside risks to our forecast that there will be a further two rate hikes in the second half of this year", said Paul Ashworth, chief United States economist at Capital Economics in Toronto.

The Fed hiked its benchmark overnight interest rate by 25 basis points to range of 1.00 percent to 1.25 percent, and said it would start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities this year.

American consumers forked out a total of US$473.8 billion (RM2 trillion) for the month, 3.8 per cent above May of a year ago.

Retail sales rose 3.8 percent in May on a year-on-year basis.

While the US central bank is expected to raise interest rates by 25 basis points at the end of a two-day meeting later on Wednesday, weak inflation, if sustained, could put further monetary tightening this year in jeopardy.

Output increased at a 2.1 percent pace in the October-December period.

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Over the past 12 months, consumer prices are up 1.9 per cent while core inflation has risen 1.7 per cent. By then, the Fed's forecast would put its key policy rate at 3 percent. Monthly prices fell for apparel, airfare, communication and medical care services, the Labor Department said.

Clothing, housing, fuel and light also saw lower inflation rate in May while prices of vegetables declined by 13.44 per cent and that of pulses and products by 19.45 per cent.

According to the CSO data, manufacturing sector, which constitutes 77.63 per cent to the IIP, grew at 2.6 per cent in April compared to 5.5 per cent in same month a year ago. United States stock index futures pared gains.

Economists had projected CPI to be flat, and retail sales to rise 0.1 percent.

The Fed on Wednesday increased borrowing costs for the second time this year, while acknowledging the recent moderation in inflation pressures.

The cost of goods and services for American consumers fell in May for the second time in three months as inflation continued to recede from a recent high-water mark.

Despite the weak report, analysts noted that April's sales numbers were revised significantly upward, especially in the "control" group of goods, which excludes gasoline, cars and building materials.

Sales at online retailers increased 0.8 per cent last month after rising 0.9 per cent in April.

Other reports by Guamnewswatch

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