The Price Still Isn't Right for Consumers

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Even the core PPI reading on the monthly reading managed to turn in a -0.1% reading in July. But economists can't stress enough that the central bank will have four more reports to review before it needs to decide late year whether or not to raise short-term interest rates again, as had been previously projected. President Donald Trump kept the war of words going Friday morning when he tweeted that the now "locked and loaded".

Pork prices shed 15.5 percent year on year, and helped cut the CPI reading by 0.46 percentage points.

Prices for all items less food and energy, the "core CPI", increased 0.1% in July, the fourth month in a row it increased that amount. The price of medical care services increased by 0.3 percent in July and is up 2.3 percent for the a year ago. It also contains many components that feed into the Fed's preferred index.

Alan Clarke, head of European fixed income strategy at Scotiabank, is predicting CPI to hit 2.8%, driven in part by rising price tags on food.

Fed officials aren't united on the issue.

According to Dudley, year-on-year inflation measures will be depressed for a while.

However, the USA has started to slow down on the economic data front with data releases in the past few months falling short of expectations. "This is concerning as it could keep the Fed in the sidelines and could mean that the drop in inflation is not as transitory as the Fed thinks".

"We are still not there yet, but we might be getting there pretty quickly if the data do not pick up", she said in a telephone interview. "We've got a ways to go". "They probably still think the weakness in inflation is temporary, but they can not be sure". That lifted the year-on-year increase in the CPI to 1.7 percent from 1.6 percent in June Economists polled by Reuters had forecast the CPI rising 0.2 percent in July and climbing 1.8 percent year-on-year.

Concerns over North Korea notwithstanding, the other major stand-off in global markets at present is between fixed-income traders and the Federal Reserve.

Still, "they have a lot of reasons to be cautious", Perli said. He's forecasting a December hike by the Fed, though "with little conviction". But it has since backtracked and in June registered a 12-month gain of just 1.4 percent.

Inflation in nearly all other components remains well contained. Two-year yields last traded at 1.294 percent.

"I'd come down on the side that says we have more work to do on inflation", Sharif said.