US July CPI Rises Less Than Forecasted

The cost of living in the U.S. rose in July at the slowest pace in three months, casting doubt on how quickly inflation will return toward the Federal Reserve’s goal.

The consumer price index climbed 0.1 percent after a 0.3 percent gain the month before, a Labor Department report showed Wednesday in Washington. The median forecast of 78 economists surveyed by Bloomberg projected a 0.2 percent increase. Excluding food and fuel, costs also rose less than projected.

Oil has plunged more than 30 percent from this year’s closing peak in June amid a global supply glut that will probably hold down inflation in the coming months. When combined with a stronger dollar and slower growth overseas, the energy slump will make the Fed’s price goal even more elusive.

“The little bit of inflation uptick there had been is fading,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly forecast the increase in consumer prices. “It’s hard for policy makers to be reasonably confident that inflation is heading back toward that 2 percent target.”

The yield on the Treasury two-year note, the most sensitive to Fed monetary policy prospects, was little changed at 0.72 percent at 8:53 a.m. in New York, the same as late on Tuesday.

Consumer costs over the past 12 months increased 0.2 percent.

Survey Results

Economists’ projections in the Bloomberg survey ranged from a 0.1 percent decline to 0.3 percent increase from the prior month.

Energy costs rose 0.1 percent in July after a 1.7 percent increase in June. A short period of stabilization in energy prices appears to be over, as a global supply glut that’s expected to last through 2016 weighs on oil.

The average cost of a gallon of regular gasoline was $2.66 as of Aug. 17, down from this year’s high of $2.80 in mid-June, according to AAA, the biggest U.S. auto group. It had been as low as $2.03 in January.

Excluding food and fuel, the so-called core index climbed 0.1 percent in July following a 0.2 percent increase the prior month. That index was up 1.8 percent from July 2014, after advancing 1.8 percent in the year through June.

Higher prices for shelter, including rents and hotel rates, are helping prop up inflation, offsetting declines in a broad stretch of categories, including air fares, new and used cars and household furnishings.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell