US inflation pressure high and industry weak

City A.M. Reporter
US consumer prices fell slightly more than expected in June on weak fuel costs, but underlying inflation pressures remain high, new data shows.

The US consumer price index fell 0.2 per cent, the Labor Department has said, the largest drop since June 2010, after rising 0.2 per cent in May. Economists had expected prices to fall 0.1 per cent.

But stripping out food and energy, core CPI rose 0.3 per cent after a similar gain in May and above economists' expectations for a 0.2 per cent increase.

"We are getting a very, very sharp rebound in core inflation and much more than the Fed had bargained for. We will be at price stability and possibly through it before the end of this year," said Eric Green, chief economist at TD Securities in New York.

Separate reports showed manufacturing is weak. Factory output was flat nationally in June while a gauge of manufacturing in New York state fell again in July.

"What a dilemma, slow growth and higher core inflation," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.

Industrial production rose in June for the first time in three months after revisions, on a jump in utilities and mining output, a Fed study showed, while manufacturing posted its weakest rise in the second quarter since the recession ended mid-2009.

"It's still a disappointing sign that manufacturing sectors hit a bit of a stall but it's not conclusive," David Resler, chief u.s. economist for Nomura Securities, New York.