U.S. June headline inflation unchanged sequentially, posts moderate print year-on-year

The headline consumer price inflation in the U.S. was unchanged at 0 percent in sequential terms in June. This was below market expectations of 0.1 percent. Energy prices dropped 1.6 percent in the month and food prices remained flat. This countered the 0.1 percent rise in core prices. On a year-on-year basis, inflation continued to ease and reached 1.6 percent, the lowest print since October 2016.

Given the slowdown in headline inflationary momentum in recent months, focus was on core inflation where a modest rise of 0.1 percent brought the streak of weak readings to the fourth consecutive month. Core inflation came in at 1.7 percent year-on-year, matching the earlier months’ pace.

Within the core, services inflation saw a moderate rise of 0.2 percent, underpinned by higher prices. Prices for motor vehicle insurance, medical care and personal care all rose. These gains were partially countered by lower prices for airline fares.

In all, the tug of war in core inflation between falling goods prices and rising services prices continued in June. Core services inflation came in at 2.5 percent year-on-year, a marked easing from 3.2 percent rate in the third quarter of 2016. In the meantime, core goods prices remain in deflationary territory.

According to a TD Economics research report, the deflationary impact of a stronger U.S. dollar in the past two and a half years is likely to ebb in the months ahead.  Inflation has subdued throughout several advanced economies, implying that a broader phenomenon, such as constant economic slack globally, might be playing a role.

“Given an increasingly tight labor market, we expect inflation pressures to build through the remainder of the year, but the process is proving slower than expected. This adds considerable risk to the pace of Fed hikes over the rest of this year and in 2018”, added TD Economics.

At 15:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was bearish at -89.9018. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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