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US inflation rises but below forecast; weekly jobless claims continue to fall

Inflation in the US appeared to be picking up in May as the annual CPI rate rose to 0% from -0.2% in April, but the rise was lower than estimates of 0.1%. The month-on-month change showed signs of accelerating prices as it rose by 0.4%, though this was still below forecast of 0.5%. Core CPI, which excludes food and energy, also came in weaker-than-expected at 1.7% annually, against estimates of 1.8%. The month-on-month increase was 0.1%, the slowest pace since November 2014.

Energy prices rose by 4.3% as the effects of lower oil prices start to dissipate, with gasoline prices up sharply by 10.4%. Food prices were unchanged but goods prices fell by 0.1% as they were dragged down by falling used cars and clothing prices. Rising transportation and medical costs put upward pressure on prices.

Today’s inflation figures reinforce the view that prices remain relatively muted in the US and are quite possibly being held back by the strong dollar. It also affirms the Fed’s outlook that there is still some way to go before prices show a sustained increase towards the Fed’s 2% target.

In contrast to the weak inflation figures, weekly jobless claims data showed further strengthening of the labor market. Initial jobless claims declined by 12,000 to 267,000 in the week ending June 13, and is below forecast of 277,000. The numbers are down from 279,000 in the previous week and is the 15th week in a row that the jobless claims have come in below 300,000. Continuing claims also fell, declining by 50,000 to 2,222,000.

There was little reaction to the data in the markets and the dollar held steady following yesterday’s losses after the FOMC statement. It’s likely that investors will be awaiting for further data before deciding on the dollar’s next direction. Next week’s third estimate of first quarter GDP could be key as recent data showed consumer spending was stronger than what was estimated in the second revision. Economists are forecasting an upward revision in GDP growth to -0.2% from -0.7%.

The euro managed to stay above 1.14, trading just above the level at 1.1409 in late European session. While the pound rose just above 1.59 against the dollar to 1.5904. Against the yen, the dollar remained near day lows at 122.66.

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