US consumer prices rose 0.1% in July compared with consensus forecasts of a 0.2% monthly gain and the year-on-year rate was 1.7% from 1.6% previously, but compared with an expected rate of 1.8%.
Underlying prices also rose 0.1% for the fourth successive month with the year-on-year increase also at 1.7% which was in line with market expectations and unchanged from the June rate.
Energy prices fell 0.1% on the month despite an increase in crude oil prices for the month. There was a significant decline in gas prices for the month which dragged the overall energy index lower while gasoline prices were unchanged.
The price of new motor vehicles declined for the 6th successive month to give a 0.6% decline over the year while the price of used cars and trucks declined 4.1% over the year.
Apparel prices did increase on the month, but still registered an annual decline.
There was a strong increase in medical care goods for the month and a steady increase across the services sector. Excluding energy services, there was a 0.2% increase in prices for the third successive month to give a 2.4% annual increase.
Market confidence in higher inflation has gradually eroded over the past 2-3 month, especially with a series of slightly weaker than expected inflation reports.
The Federal Reserve has also been taking notice of the data and stated that trends would be monitored closely.
The latest data will maintain concerns that inflation will not return to the target area, although the services-sector data should support the case that underlying inflation is close to target.
Treasuries also erased slight losses ahead of the data to trade higher by 5 ticks on the day before retreating once again with little change in equity markets.