It's Inflation Day for the Dollar

It's Inflation Day for the Dollar

It's Inflation Day for the Dollar

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.

"But it'll be slow and for now markets will remain skeptical on Fed hikes", he explained. Though this isn't the Fed's preferred inflation measure, it nonetheless shows a weakened inflation outlook. Specifically, annual growth in the core private consumption deflator (PCE) had reached 1.9% in February this year, but has sunk back to 1.5% by June.

The Fed has a 2 per cent inflation target and tracks a measure that has been stuck at 1.5 per cent since May.

Economists had forecast the CPI rising 0.2 per cent in July and climbing 1.8 per cent year-on-year.

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The low inflation numbers aren't likely to derail that move, but if they persist the data could give the central bank pause when considering whether to raise its benchmark interest rate later this year.

"US interest rates were hovering around zero for the best part of a decade while the Fed accumulated over $4tn worth of assets via QE, leading some to warn the only possible result would be runaway inflation". The index for fruits and vegetables rose 0.5 percent after declining in June.

Apparel prices did increase on the month, but still registered an annual decline. The only index to decline over the past year was that for cereals and bakery products, which dropped 0.5 percent. Though soft energy prices have played a role in weak inflation readings, it wasn't the only factor. Headline consumer prices have averaged less than 2% - 1.8% to be exact - since the broad stabilisation in inflation at lower levels in the late 1990s. It is expected to delay its next rate hike until December while it monitors inflation. Core prices had also been expected to climb by 0.2%.

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. Evans, who has a vote on the Fed's 9-member policy committee this year, is viewed as a leading "dove" - a group of Fed officials who believe it is important to push unemployment as low as possible as long as inflation remains under control.

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