US consumer prices slipped 0.1 per cent in May

Posted June 15, 2017

Core inflation, which excludes volatile energy and food items, rose by 1.7% year-on-year, posting its smallest increase since May 2015.

US consumer prices are rising at the slowest pace in half a year and consumers last month showed renewed signs of caution, potential complications for the Federal Reserve as it charts out plans for short-term interest rates through the rest of the year.

June 14 The dollar index on Wednesday fell to its lowest since November 9 against a basket of major currencies that measure its strength after the release of weaker-than-expected U.S. CPI and retail sales data.

The unemployment rate hit a 16-year low in May, underscoring steady improvement across the labor market, though wage gains have remained subdued. Unemployment in May dipped to 4.3 per cent. The Fed also announced plans to start gradually paring its bond holdings later this year, which could cause long-term rates to rise.

The fall in headline inflation was in large part attributed to the significant decline in gasoline prices, which recorded their largest contraction since February a year ago.

The Consumer Price Index, which tracks changes in the cost of household goods and services, declined 0.1 per cent compared to April.

Retail inflation slumped to record low of 2.18 per cent in May driven by sharp drop in kitchen staples like vegetables and pulses, strengthening government's case for lowering of interest rate by RBI. By then, the Fed's forecast would put its key policy rate at 3 percent. On a yearly basis, inflation rose by 1.9%, recording its smallest increase since November of previous year.

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Medical services such as the cost of doctor's visits dipped 0.1 percent in May but have risen 2.5 percent over the past 12 months.

The US dollar fell against a basket of currencies on the data, while prices for US Treasuries rose.

According to the CSO data, manufacturing sector, which constitutes 77.63 per cent to the IIP, grew at 2.6 per cent in April compared to 5.5 per cent in same month previous year. The index, which tracks the greenback against the currencies of major United States trade counterparts, was above the 97 level before the data release. Gas station sales were down 2.4 percent month-over-month, but electronics/appliances were also down 2.8 percent after rising 2.2 percent in April.

The Fed on Wednesday increased borrowing costs for the second time this year, while acknowledging the recent moderation in inflation pressures.

Retail sales - reflecting spending at stores, restaurants and websites - fell 0.3% in May, the biggest decline since January 2016, the Commerce Department said. And April retail sales were revised upward to a 0.4 percent gain, from 0.3 percent initially reported.

Sales at nonstore retailers led by Amazon (AMZN) and building materials suppliers such as Home Depot (HD) have been the strongest categories, while sales at department stores such as Macy's (M) continue to bleed. This marks the third consecutive decline and leaves prices 0.8 percent lower than one year ago.