Another soft CPI report pares Dec US rate-hike view

Another soft CPI report pares Dec US rate-hike view

Retail food-at-home prices rose 0.3 percent in July, according to the Consumer Price Index (CPI), the first 12-month increase since November 2015 and a signal of easing deflation.

"Indeed, food prices have risen for seven of the last eight months - with last month being the exception, showing a 0.2% month-on-month fall". They are now down 13.3 percent over the past 12 months, the biggest 12-month decline in cell phone charges in 16 years.

Charles Evans, the president of the Fed's regional bank in Chicago, said he does not expect the balance sheet reduction to make much of a market impact because the move has been "well-choreographed". Economists polled by Reuters expected the index to climb 0.2 percent.

Excluding the volatile food, fuel and trade categories, prices were flat for the month, compared to the expected 0.2 per cent increase, while the 12-month measure dropped a tenth of a point to 1.9 per cent, the third straight decline.

Speaking to a group of reporters, Evans added that he believes waiting until December to raise rates would give the Fed time to assess whether inflation is moving back toward the Fed's 2 percent annual target.

"The last thing the markets want here is the tension between (the) USA and North Korea".

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"A softer reading would mean fresh trouble as it would remind investors that inflation remains well below Fed's target and suggest that a December rate hike might not be that likely after all", he said. In testimony in July, Yellen noted "with inflation continuing to run below the Committee's 2 percent longer-run objective, the FOMC indicated in its June statement that it intends to carefully monitor actual and expected progress toward our symmetric inflation goal".

In addition to the low unemployment rate, Dudley said the USA dollar is weakening "so that should have some consequences for import prices", which in turn will push up depressed goods prices.

The euro was up 0.45 percent at $1.1823 after Morgan Stanley raised its forecasts for the currency, predicting it would hit $1.25 early next year.

Prices in the U.S. rose by less than expected last month, as inflation in the economy remained tame. Year over year data followed with 1.9% on the headline and 1.8% on the core, both below projections.

On Thursday, the Labor Department released a separate report showing an unexpected drop in producer prices in the month of July.

On Friday, the curve steepened to its widest in more than a week, with the spread of US 5-year note and 30-year bond yields rising to 105 basis points.