US Consumer Prices Unchanged In June Amid Falling Energy Prices

Cautious Fed Lifts Global Stocks to Record High, Investors Eye Earnings Lift

Sterling rallied to its highest rate in nearly ten months yesterday after figures for American consumer spending and retail sales came in below expectations, reducing further the chances of the US Federal Reserve raising interest rates again this year.

Still, the economy likely gained speed in the second quarter after a sluggish performance at the start of the year.

Other currencies including the Australian dollar gained 0.3 percent to 0.7759 extending weekly gain to 1.9 percent, its biggest since period ended March 17.

Inflation in June came in flat, a sign that consumer prices had trouble sustaining its upward momentum.

CPI is expected to rise 0.2 percent on a month-to-month basis after a 0.1 percent increase earlier month, a soft result may wane Fed rate hike speculation even more therefore burdening the United States dollar.

Economists polled by MarketWatch had forecast a 0.1% increase in the CPI. The pound has taken some support from a round of hawkish signals from Bank of England policymakers last week, and there are still some in the market looking out for a rise in interest rates next month.

The annual core inflation rate was 1.7 percent, the same as May but six-tenths slower than January. Core CPI, the measure that excludes volatile energy and food products, remained steady at 0.1% on a monthly basis, falling short of the forecasted 0.2%.

The kiwi was battered early in the week by disappointing domestic data but gained sharply toward the end of the week amid speculation the Reserve Bank may be more inclined to hike interest rates in the face of increases and bullish talk from other central banks including the Bank of Canada.

The annualized rate of inflation in several CPI components over the past three months showed declines of 4.9 per cent in apparel, 5.5 per cent in used cars and trucks and 4.1 per cent in professional services, said Heidi Learner, chief economist in NY for brokerage Savills Studley, a unit of Savills Plc.

As a result, the odds of another rate hike in December as judged by the futures market fell to 43.1 percent, from 47.3 percent a week ago.

Janet Yellen, chairwoman of the Fed, has said that the central bank is watching inflation closely. It earlier fell to 2.279 percent, its lowest since June 30.

"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. Oil prices rose 1 per cent.

There were also decreases in airline fares and prices for apparel, household furnishings, new motor vehicles, and used cars and trucks.

The U.S. consumer price index increased 1.6 percent, the smallest gain since October 2016, after rising 1.9 percent in May, the Labor Department said. Americans also cut back on spending at restaurants and bars, as well as on hobbies. The consumer is employed, but retail sales aren't going very fast.

US 10-year yield fell to 2.303 percent, from 2.348 percent late on Thursday. Even excluding for vehicle sales, which have declined recently, retail sales figures still posted a 0.2% drop.

"The reaction in the bond market, it's more of a function of retail sales".

USA retail sales also underperformed, falling for a second straight month in June.

"On the basis of June's data, it is getting harder for the Fed to continue claiming that this is a temporary drop-off", said Paul Ashworth, chief USA economist at Capital Economics.

In the second quarter, industrial production increased at a 4.7 per cent rate, driven by strong gains in mining and utilities. The Federal Reserve has set a 2% inflation target.

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