US producer prices drop in latest sign of tame inflation

Even though majority of the U.S numbers remained “upbeat” in October, retails sales increased less than expected which suggested a significant slowdown in consumer spending that could possibly temper expectations of a strong pickup in Q4 economic growth. This report led to speculation that the Fed will increase interest rates when officials meet in next month. The CME Group’s Fed futures watch tool put the probability of a December hike at 70 per cent.

NEW United States applications for unemployment benefits last week held steady at levels consistent with a strengthening labour market and job openings rose in September, encouraging signs for the Federal Reserve as it contemplates raising interest rates next month.

The euro edged up to US$1.081 (RM4.739) around 10pm from US$1.0741 at the same time Wednesday.

“We are talking about going from an ultra-accommodative monetary policy to an extremely accommodative monetary policy”, said Tom Nelson, senior vice president and director of investment solutions at Franklin Templeton.

Other Fed policymakers argued that inflation should rebound, allowing the Fed to soon lift rates from near zero though probably proceed gradually after that.

Their remarks came as NY Fed President William C. Dudley said the conditions needed to begin normalizing monetary policy “could soon be satisfied”, and St. Louis Fed President James Bullard said keeping rates near zero is no longer needed with labor and inflation gains near the central bank’s goals.

With Federal Reserve officials again openly telegraphing the likelihood the Federal Open Market Committee will raise interest rates in December, the August stock market selloff that followed China’s decision to devalue the yuan resumed. Fed chair Janet Yellen has said they will do so when they are “reasonably confident” that inflation is returning to their 2 percent target.

Interestingly, he says that after the Fed’s move, “in both cases, the USA dollar weakened nearly immediately after the first rate hike and stayed below its initial level throughout the following three years”. The Labor Department released a report on Friday showing an unexpected decrease in US producer prices in the month of October.

In 2013, when interest-rate volatility was front and center, the nontraditional-fund category had an average return of 0.29%, compared with a 1.42% decline in the intermediate-term bond fund category.

He noted, however, that the strong dollar is not likely to keep inflation below target for long, and that setting aside energy and food prices, inflation is already above 1 percent. The build-up of inventories is due to production exceeding global demand. Core CPI that removes those volatile products gained by 0.2 percent slightly ahead of the anticipated 0.1 percent.