Washington: US consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand that diminished prospects of a third interest rate increase from the Federal Reserve this year.
Still, the economy likely gained speed in the second quarter after a sluggish performance at the start of the year. Other data on Friday showed industrial production picked up in June amid a rise in output at mines and factories.
The Labor Department said the unchanged reading in its Consumer Price Index came as the cost of gasoline and mobile phone services declined further. The CPI dropped 0.1 per cent in May and the lack of a rebound in June could trouble Fed officials who have largely viewed the recent moderation in price pressures as transitory.
"We expect a little more cautious language from Fed officials on the inflation outlook going forward," said Michael Hanson, chief economist at TD Securities in New York.
Policymakers are confronted with benign inflation and a tight labour market as they weigh a third rate hike and announcing plans to start reducing the central bank's $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities.
In the 12 months through June, the CPI increased 1.6 per cent — the smallest gain since October 2016 — after rising 1.9 per cent in May. The year-on-year CPI has been softening steadily since February, when it hit 2.7 per cent.
Economists had forecast the CPI edging up 0.1 per cent last month and climbing 1.7 per cent from a year ago.
The so-called core CPI, which strips out food and energy costs, edged up 0.1 per cent in June, rising by the same margin for three straight months. The core CPI increased 1.7 per cent year-on-year after a similar gain in May.
The Fed has a 2 per cent inflation target and tracks a measure which is currently at 1.4 per cent.
The dollar extended losses against a basket of currencies on the data while prices for US government bonds rose. Financial markets were pricing in a 47 percent chance of a 25 basis point rate hike in December, down from 55 per cent before the data, according to CME Group's FedWatch program.
Fed Chair Janet Yellen told lawmakers on Wednesday that the recent cool-off in inflation was partly the result of "a few unusual reductions in certain categories of prices" that would eventually drop out of the calculation.
In June, gasoline prices fell 2.8 per cent, decreasing for a second straight month. Food prices were unchanged after rising for five consecutive months. The cost of cellular phone services fell 0.8 per cent, extending their decline amid price competition among service providers.
There were also decreases in airline fares and prices for apparel, household furnishings, new motor vehicles, and used cars and trucks. Rental costs rose, with owners' equivalent rent of primary residence increasing 0.3 per cent after advancing 0.2 per cent in May.
In a separate report, the Commerce Department said retail sales fell 0.2 per cent last month, weighed down by declines in receipts at service stations, clothing stores and supermarkets. Americans also cut back on spending at restaurants and bars, as well as on hobbies.
May's retail sales were revised to show a 0.1 per cent dip instead of the previously reported 0.3 per cent drop. Retail sales rose 2.8 per cent year-on-year in June.
Excluding automobiles, gasoline, building materials and food services, retail sales slipped 0.1 per cent last month after being unchanged in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Despite two straight months of decreasing retail sales, consumer spending likely gained steam in the second quarter after a helping to restrict economic growth to a 1.4 per cent annualised rate in the first quarter.
Growth in the second quarter likely got a boost from the industrial sector of the economy. In a third report on Friday, the Fed said industrial production increased 0.4 per cent in June after gaining 0.1 per cent in May.
Output at the nation's factories rebounded 0.2 per cent last month after falling 0.4 per cent in May. Mining production shot up 1.6 per cent, adding to May's 1.9 per cent surge.
In the second quarter, industrial production increased at a 4.7 per cent rate, driven by strong gains in mining and utilities. The Atlanta Federal Reserve is forecasting GDP to have risen at a 2.6 per cent rate in the second quarter.