Published: Sat, August 13, 2016
Economy | By Melissa Porter

Weak US retail sales, inflation data dim prospect of Fed rate hike

USA 10-year yields plunged by the most in six weeks after sales at US retailers were little changed in July while wholesale prices unexpectedly fell by the most in nearly a year, a sign inflation is likely to stay muted. The prior month came in at 0.5%. Combined, the data point to a lack of pricing power that could give Federal Reserve policy makers reason to keep interest rates low for the time being.

Retail sales were unchanged in the month of July compared to a 0.9 per cent uptick in June.

The figures prompted some economists to trim their third-quarter growth forecasts.

Equity markets have fallen in the wake of the weaker than expected report.

Separately, the Labor Department reported Friday that the producer-price index dropped 0.4 percent in July, the biggest decline since September. Taking out ex food and energy YoY, the number plunged to +0.7% from 1.3% last month and 1.2% estimated (see chart below).

USA producer prices unexpectedly fell in July on declining costs for services and energy products, pointing to a tame inflation environment that could make it hard for the Federal Reserve to raise interest rates.

The U.S. consumer, which makes up two-thirds of the economy, only increased spending in the motor vehicle sector, furniture and nonstore sales.

Services rose 0.4 percent in June.

The 10-year note yield fell seven basis points, or 0.07 percentage point, to 1.49 percent as of 8:55 NY, according to Bloomberg Bond Trader data.

The lack of progress toward the goal has led Chicago Fed President Charles Evans to argue the central bank might want to consider not raising rates again until inflation is clearly back above 2 percent.

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