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PPI drops 0.1pc

Reuters
Saturday, August 12, 2017

WASHINGTON - US producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate hike.

Other data on Thursday showed an increase in the number of Americans filing for unemployment benefits last week. The trend in weekly jobless claims, however, remained consistent with a tightening labour market.

"Another twist of the screw tighter for this labour market but inflation is not able to gain a foothold in this economy," said Chris Rupkey, chief economist at MUFG in New York.

"The pot is on the stove boiling but no inflation steam is coming out."

The Labor Department said its producer price index for final demand slipped 0.1 per cent last month, weighed by decreasing costs for services. That was the largest decline since August 2016 and reversed June's 0.1 per cent gain.

In the 12 months through July, the PPI increased 1.9 per cent after rising 2.0 per cent in the year through June. Economists had forecast the PPI to tick up 0.1 per cent last month and 2.2 per cent from a year ago.

A key gauge of underlying producer price pressures that excludes food, energy and trade services was unchanged last month. The so-called core PPI gained 0.2 per cent in June. The core PPI increased 1.9 per cent in the 12 months through July after advancing 2.0 per cent in June.

Though the correlation between the PPI and the consumer price index has weakened, last month's drop in producer prices could worry Fed officials who have long argued that the moderation in inflation was temporary.

Fed Chair Janet Yellen told lawmakers last month that "some special factors" were partly responsible for the low inflation readings. Inflation, which has remained below the US central bank's 2 per cent target for five years, is being watched for clues on the timing of the next interest rate increase.

The Fed is expected to announce a plan to start unwinding its $US4.2 trillion ($F8.5t) portfolio of Treasury bonds and mortgage-backed securities at a policymaking meeting next month.








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