Dollar slips after United States consumer price data misses expectations

Javier Stokes
August 12, 2017

Economists polled by Reuters had expected a 0.2% month-on-month increase.

The data "points to ongoing slow-mo growth that doesn't do a thing to threaten more intense Fed action or provide solace to the bond bears out there", said David Ader, chief macro strategist, at Informa Financial Intelligence.

The bearish reading today "could be another major blow to the dollar's outlook", according to Konstantinos Anthis, researcher at ADS Securities, before the inflation release.

The new data showed inflation remains soft, a trend that has concerned Federal Reserve officials because it indicates that the economy still is not operating at maximum efficiency.

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.

US stock index futures were lower on Friday as the escalating war of words with North Korea drove investors to seek safety in low-risk assets.

After all, the market now attaches less than a 50% probability to a further rate rise this year, and is even dubious the Fed will hike rates again in 2018. "The only way spending power has increased at all is that inflation has remained below the Fed's target rate".

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The annual inflation rate as measured by consumer prices has been moving down since the winter after climbing above 2 percent.

Drilling into the details, there's been a large drop in mobile phone costs in recent months, due to intensified price discounting - prices are down 13% on year ago level thanks to a move to unlimited data plans by many phone retailers.

Clothing costs, which had been falling, rose 0.3 percent in July. Prescription drug prices also dropped back earlier this year, partly as a correction to strong gains in 2016.

USA 30-year bond yields also fell to a six-week trough of 2.769 percent. Ten-year yields were last at 2.188 percent.

Prices for meat had their largest one-month gain in nearly three years, adding 1%. "A December rate hike is being priced out of the market". Against the South Korean won, the dollar dipped to 1,142.81 won on the inflation numbers, after initially rising to 1,146.41 won earlier on Friday versus 1,144.16 won on Thursday.

The costs of hotel and motel stays plunged a record 4.9 percent in July, the biggest one-month on records that go back to 1997.

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