USA wholesale inflation falls in July on declining services costs

US wholesale prices edged down 0.1 percent in July

USA wholesale inflation falls in July on declining services costs

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. But she has also indicated that if her view is proven wrong, she is ready to support a change in the Fed's plans for rate hikes.

US consumer prices rose slightly in July as higher food costs were partly offset by falling prices for a range of other goods, suggesting benign inflation that could persuade a cautious Federal Reserve to delay raising interest rates until December.

US inflation was subdued in July, held down in part by weakness in hotel rates, which perpetuates a soft trend that is puzzling Federal Reserve officials who expected an improving economy to be pushing consumer prices up at a faster rate by now.

USA wholesale inflation falls in July on declining services costs
USA wholesale inflation falls in July on declining services costs

The consumer price index read 1.7% on the year versus expectations of 1.8% and the June figure of 1.6%. Just when the Fed though it had won the inflation battle, victory was snatched from its hand's within a matter of months.

PPI, which measures costs of wholesale goods and services, fell 0.1 per cent in July, the first decline since August of a year ago, according to the report, confounding economists who expected a 0.2 per cent increase.

The report said consumer prices in July were up by 1.7% compared to the same month a year ago, reflecting a modest acceleration from the 1.6 year-over-year growth in June.

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In fact this year, the Fed's preferred measure of inflation has been backtracking, dropping to a 12-month increase of 1.4 percent in June, below the 2.2 percent 12-month gain the inflation gauge had hit in February.

It is expected to raise interest rates in December, though such a move would depend on future inflation data.

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The Fed's favoured measure of inflation lags even further behind, with the PCE measure now registering an annual rate of 1.4% in June.

Clothing costs, which had been falling, rose 0.3 percent in July.

The Fed still believes that inflation will be back at target by the end of the year, as does Knightley at ING: "This brings to an end four-consecutive months of deceleration and we think that further rises are likely in the months ahead".

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In late trading, USA 10-year yields dropped to six-week lows of 2.182 percent after the data, compared with 2.211 percent late Thursday. Last month, the gasoline, natural gas and home heating oil all showed declines.

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