USA inflation flat in June while retail sales sink

MSCI's broadest index of Asia Pacific shares outside Japan ticked up 0.1 per cent. File

The US dollar declined against its major counterparts in the European session on Friday, as US inflation turned flat in June and retail sales unexpectedly decreased for the second consecutive month, dampening expectations for faster rate hike by the Federal Reserve.

The so-called core CPI, which strips out food and energy costs, edged up 0.1 per cent in June, rising by the same margin for three straight months. Year-on-year, CPI fell from 1.9% in May to 1.6% in June, below the forecasted 1.7% rise.

USA consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand.

Data from the Commerce Department showed that retail sales fell by 0.2% in June after edging down by a revised 0.1% in May.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Earlier this week, Chair Janet Yellen reiterated that the Fed would be watching the incoming inflation data particularly closely over the coming months".

Janet Yellen told USA lawmakers anxious about the health of the economy past year that expansions do not die of old age. She pointed to solid hiring and rising household wealth - resulting from strong home price gains and a higher stock market - as fuel for ongoing growth.

While prices have backtracked a bit in recent months, the economy is still operating with tight labor markets, she said. As we walked into the year, expectations were flying-higher as the Dollar drove up to fresh 14-year highs, but since then - those higher expectations have only led to bigger disappointment as actual economic performance has simply been unable to keep pace. In particular, core retail sales which exclude automobiles, declined by 0.2% instead of posting an equivalent percentage improvement that was expected by analysts.

The dollar index a measure of the United States currency against a basket of six trade-weighted peers ended lower at 94.90 as against 95.78 previously.

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"The CPI data begs the question, at what point does transitory becomes something that is more sustained, in terms of the softness", said Richard Franulovich, senior currency strategist at Westpac Banking Corp in NY.

Before this week, investors had been selling bonds, driven largely by anxiety that an improving global economy may allow major central banks outside of the U.S.to scale back on stimulus efforts that have helped lift asset prices since the financial crisis.

Meanwhile, U.S. stock futures pointed to a mixed open.

The Dow and S&P 500 hit record closing highs on Friday after weak economic data dulled prospects of more interest rate hikes this year.

Gold prices jumped 1.4 percent to the highest level in almost two weeks on Friday after data pointed to weak US inflation, reaffirming doubts that the USA central bank would again hike interest rates this year.

The unemployment rate is at 4.4 percent, near a 16-year low.

Global benchmark Brent inched down 0.1 percent to $48.36 following Thursday's 1.4 percent jump, and is headed for a 3.6 percent gain this week. It was at $1.145 Friday.

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