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Slowdown in US consumer inflation may sow Fed doubt on prices

Jun 14 2017 14:50
Michelle Jamrisko, Bloomberg

Washington - A greater-than-expected deceleration in US consumer-price inflation in May could give some pause to Federal Reserve officials as they consider further interest-rate increases, Labour Department figures showed on Wednesday.

Highlights of CPI (May)

• Consumer-price index fell 0.1% m/m (est. unchanged) following 0.2% rise in prior month

• CPI up 1.9% y/y (est. 2%) after 2.2%

• Excluding volatile food and fuel, costs rose 0.1% m/m (est.

0.2%) after 0.1% rise; up 1.7% y/y, lowest since May 2015 (est. 1.9%)

Key takeaways

While the data can be volatile month to month, often depending on energy and food prices, the underlying measure of inflation has slowed to 1.7% from 2.3% in January, raising the risk that price gains will drift further from the Federal Reserve’s target.

The decrease in the headline index was led by energy - including the biggest drop in gasoline since February 2016 - though prices also fell in apparel, airfares, communication and medical-care services.

Fed officials primarily judge their progress on meeting their target via a separate index, which has fallen below 2% since meeting that objective earlier in 2017 for the first time in almost five years.

Central bankers conclude a two-day meeting in Washington later on Wednesday, where they are widely expected to raise the benchmark interest rate for second time this year amid a tightening labour market. Additional hikes, however, may be contingent on a rebound in underlying inflation.

Economist views

“We see risk that it may be too soon to call for a rebound” from muted inflation, economists at TD Securities said in a research note ahead of the release. “A sustained drag from wireless services prices and vehicle prices is likely this month, while we see limited scope for stronger rebounds in other categories to compensate.”

Other details

• Energy prices fell 2.7% from April; food costs rose 0.2%.

• Shelter costs advanced 0.2% after climbing 0.3% in April

• Price measure for wireless services, which had dragged down CPI in recent months, fell 0.1%; had negligible effect on overall drop

• Hourly earnings adjusted for inflation rose 0.6% from May 2016, after a 0.3% annual gain, a separate report from the Labour Department showed

• Monthly drop in headline CPI is second decline in three months

• Three-month annualised change in core CPI is zero

• CPI is one of three monthly price gauges from Labour Department; wholesale prices were unchanged in May as energy and food costs declined, data showed Tuesday; import price figures are due on Thursday.

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us  |  economy  |  cpi

 
 
 
 

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