US CPI Unchanged For June, Doubts Over Further Fed Tightening Will Persist

US consumer prices were unchanged in June compared with an expected gain of 0.1% for the month and the year-on-year rate declined to 1.6% from 1.9% and compared with an expected rate of 1.7%.

The core rate rose 0.1% on the month compared with an expected increase of 0.2% with the year-on-year rate unchanged at 1.7% which was in line with expectations.

Food prices were unchanged on the month while energy prices fell 1.6% with a fifth successive decline in fuel oil prices. There was also a decline in energy services prices for the month.

Prices for new vehicles decline for the fifth successive month while the run of declines for used vehicles extended to six months.

Apparel prices dipped for the fourth successive month and registered a 0.7% annual decline.

There was, however a steady increase of 0.2% in services-sector prices, excluding energy, with an annual increase of 2.5%.

The Federal Reserve in its recent statements has expressed uncertainty surrounding the inflation outlook and this has also been a feature within recent speeches from FOMC members including Chair Yellen.

Yellen expects that the recent dip in inflation is due to temporary factors and that inflation will rise over the medium term once these temporary effects subside.

Overall developments surrounding inflation will be a key factor in determining expectations surrounding Federal Reserve policy.

The latest data is likely to trigger fresh doubts surrounding the inflation outlook and create renewed uncertainty surrounding potential further rate increases, although the Fed will see the steady rate of services-sector inflation as justifying their policy.

The dollar came under pressure after the data, especially as the retail sales data was also weaker than expected with USD/JPY dipping to test the 112.50 area while Treasuries moved higher with the 10-year contract up 12 ticks to yield 2.31%.

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.