US TIPS breakeven rates dip after July CPI data

The Labor Department said its consumer price index edged up by 0.1 percent in July after climbing by 0.3 percent in June and 0.4 percent in May.

Reuters highlighted the impact of the 5.6 percent month-on-month decline in airfare, the largest since 1995, while the Wall Street Journal led with the 3.1 percent rise in shelter costs, which make up a third of the Consumer Price Index. Excluding volatile food and energy categories, so-called core prices also increased 0.1%.

On a monthly basis, the CPI for July increased 0.8 per cent. The department said of the twelve major groups of goods and services, nine recorded an increase, one registered a decline, while two remained unchanged.

The latest rise is against the longer-term trend, which has seen house price inflation gradually falling since it peaked at 12 per cent last September. Core inflation using that barometer was 1.3% for the same period. GRADUAL RATE HIKES Most economists expect the Fed will raise its short-term interest rate next month for the first time in nearly a decade. Over the past year core prices are up 1.8%.

In the 12 months through July, the CPI climbed 0.2 percent. “Many small firms are benefitting from the continued fall in oil prices and increased consumer spending”.

Long-term inflation expectations as measured by the yield premium on benchmark 10-year Treasuries notes over 10-year Treasury Inflation Protected Securities shrank to their weakest in seven months.

However, the inflation level continues to be a big worry because it isn’t where the Fed would like to see it before hiking interest rates.

Lord O’Neill, Commercial Secretary to the Treasury, said: “Today’s inflation figure shows the benefit of an economic plan that is working, with a strong combination of low prices and rising pay packets”. Inflation that runs at 2% has been a stated Fed target.

Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said Thursday that it would be a mistake to raise the interest rate anytime soon.

Growth in food and energy prices eased last month.