Australian dollar holds firm as United States inflation surprises to upside

Cornelia Mascio
Luglio 12, 2019

US underlying consumer prices increased by the most in almost 1-1/2 years in June amid solid gains in the costs of a range of goods and services, but will probably not change expectations the Federal Reserve will cut interest rates this month. A rate cut at the July 30-31 policy meeting, the first in a decade, is nearly certain after Fed Chairman Jerome Powell on Wednesday told lawmakers the U.S. central bank would "act as appropriate" to protect the economy from rising risks such as trade tensions and slowing global growth.

The Consumer Price Index, which tracks costs for household goods and services, rose 0.1 percent compared to May, a notch above analyst forecasts, the Labor Department reported. "This argues against aggressive monetary stimulus from the central bank", said Chris Rupkey, chief economist at MUFG in NY. The Fed last month downgraded its inflation projection for 2019 to 1.5 per cent from the 1.8 per cent projected in March.

The hotter-than-expected inflation numbers come as the Federal Reserve is poised to cut interest rates for the first time in a decade, due to fears of a global economic slowdown and uncertainties fueled by trade conflicts. The primary PPI is expected to have risen 1.6% for the month over last year, slower than the 1.8% year-over-year increase in May.

The Fed is monitoring inflation through the personal consumption expenditures (PCE) index to determine monetary policy.

The tobacco and liquor sector rose 1 per cent, with the average cost of beer increasing by 2 per cent and the cost of wine rising by 1.6 per cent. The index for all items less food and energy rose 2.1 percent over the last 12 months, and the food index increased 1.9 percent.

"This month's bounce in goods inflation was due primarily to two of the more volatile categories in the series: vehicles and apparel", said senior USA economist Eric Winograd of global asset management firm AllianceBernstein.

The absence of inflation in recent years despite solid economic growth removed pressure on the U.S. central bank to keep raising the benchmark lending rate, but the surprise jump in June might put in doubt any further Fed rate cuts this year. Economists expect the tightening labour market, which is lifting wages, and the imposition in May of more tariffs on Chinese goods to gradually push inflation towards its 2% target.

Base metals ended mixed as LME tin gained 0.61%, lead rose 0.33%, nickel climbed 0.81%, while copper lost 0.46%, alumimium fell 1.57%, and zinc slid 0.52%.

The rent sector dipped 0.1 per cent. Healthcare costs increased 0.3%, after a similar advance in May. Apparel prices surged 1.1 per cent after being unchanged in May.

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