Retail Food Prices on the Rise: CPI

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On Thursday, the US Bureau of Labor Statistics published the figures on consumer prices for the month of July. Though this isn't the Fed's preferred inflation measure, it nonetheless shows a weakened inflation outlook.

United States core consumer prices, grew steadily for the fourth month in July, disappointing analysts who anticipated inflation to improve moderately. The decline was driven by a 0.2 per cent drop in final demand services.

Policymakers at the Federal Reserve have repeatedly said that price pressures would increase as slack in the labour market is removed.

The central bank had been expected to raise the benchmark lending rate a third time this year, but some economists are now ruling that out due to persistently weak inflation.

US interest rate futures rose on Friday with some contracts hitting a two-month high as data showed USA inflation remained weak, stoking traders to dial back their view the Federal Reserve would raise key overnight borrowing costs at year-end. Core PPI also dropped, by 0.1% against predictions for a rise of 0.2%. In the past three months, the core inflation was up a soft 1.2 percent annual rate.

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And unlike previous months, July's gains were not entirely driven by the volatile food and fuel categories, since the increase was the same even when those categories were excluded, for both the monthly and the 12-month core measures.

Prices of USA government debt initially rose on the inflation data, but pared gains after Russian Foreign Minster Sergei Lavrov said there was a Russian-Chinese plan to defuse tensions between the United States and North Korea. The index for fruits and vegetables rose 0.5 percent after declining in June. Evans, who has a vote on the Fed's 9-member policy committee this year, is viewed as a leading "dove" - a group of Fed officials who believe it is important to push unemployment as low as possible as long as inflation remains under control.

Rise in the US Consumer Price Index last month, after being unchanged in June.

Weak price pressures this year mean inflation has been well behind where it was over the same period in 2016. In July, the Fed said that it expected to begin the bond trimming later this year.

The Fed targets consumer price inflation as measured by the Personal Consumption Expenditures price index, but some of the factors are the same across all inflation measures. Core PCE inflation has average only 1.7% an annual inflation on this basis has been below 2% for around 75% of the time.

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