United States: Inflation surprises again to the downside in June
July 14, 2017
Inflationary pressures remained muted in June, extending the streak of disappointing inflation results to four months and further fueling concerns about the Federal Reserve’s ability to continue removing monetary accommodation this year. Consumer prices adjusted for seasonal factors were unchanged in monthly terms in June, which followed May’s 0.1% month-on-month drop but came in below market expectations of a 0.1% increase. The nil reading reflected a 1.6% drop in energy prices, largely unchanged food prices and soft pressures on core prices, including airfares, lodging and used cars.
Inflation eased from 1.9% in May to 1.6% in June, the lowest figure since October. Meanwhile, annual average inflation was steady in June at May’s 1.8%, which marked the fastest pace of inflation since March 2013.
Core consumer prices, which exclude food and energy prices, rose 0.1% from the previous month in June, mirroring May’s increase. Core inflation was unchanged at May’s 1.7% in June, the softest figure in two years. Although the Federal Reserve targets an alternative measure of inflation called the personal consumption expenditures price index (PCEPI), it also follows the core inflation measure closely to judge whether inflationary pressures are increasing in the economy.
In mid-July, Federal Reserve Chair Janet Yellen acknowledged that inflation has increasingly become a source of concern for Fed officials, with recent CPI reports repeatedly missing market expectations. While she downplayed the factors driving the current price weakness as transitory and idiosyncratic, she also emphasized that monetary policy is not on a preset course, suggesting that the Federal Reserve could reconsider its current ‘dot plot’ of four interest rate hikes for this year if inflation continues to surprise on the low side.
Author: David Ampudia, Economist