US consumer prices slipped 0.1 per cent in May

Markets widely expect the Fed to raise its benchmark rate by 25 bps and investors will mostly be looking for guidance on the future path of interest rate increases. Recent data have suggested that inflation may even be slowing further. May's decline was the largest since January 2016 and confounded economists' expectations for a 0.1 per cent gain. Power generation rose by 5.4 per cent in April, down from 14.4 per cent expansion in April a year ago. While that in part reflected cheaper gasoline prices, Americans also cut spending at department stores, vehicle dealerships, electronics retailers and restaurants.

The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent last month after a similar gain in April. The U.S. dollar has usually softened in 2017; however, this is not yet showing up in higher prices at the consumer level, said TD Economics.

"The latest inflation data have undoubtedly helped the case of officials arguing for waiting more than three months for the next move", said Jim O'Sullivan, chief US economist at High Frequency Economics in Valhalla, New York.

The economy grew at a 1.2 percent annualized rate in the first quarter, held back by a near stall in consumer spending and a slower pace of inventory investment. These included apparel, airline fares, medical care services and communication.

It was the second drop in the CPI in three months. May's increase was just below the 1.8 percent average annual increase over the past decade.

The Fed has a 2 per cent inflation target and tracks an inflation measure which is now at 1.5 per cent.

Earlier this month, RBI left key interest rate unchanged as it wanted to be more sure that inflation will stay subdued.

What happened? It appears that a number of factors were involved: rents were lower than expected, along with consumer goods prices. Prices for U.S. Treasuries rallied, while stocks on Wall Street were little changed.

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Fed futures markets on Wednesday showed the chances of another increase before the end of the year, which had been seen as highly likely in September or December, had fallen below 50 percent.

Auto sales remained sluggish for the month, falling 0.2 percent in May, while electronics and appliance sales saw their largest monthly decrease in more than seven years, plunging 2.8 percent.

Core inflation, which excludes energy and food, rose a slight 0.1 per cent in May.

Economists had expected sales to increase slightly last month after rising 0.4 per cent in April.

According to the CSO data, manufacturing sector, which constitutes 77.63 per cent to the IIP, grew at 2.6 per cent in April compared to 5.5 per cent in same month a year ago. Food prices rose for a fifth straight month.

Clothing costs dropped 0.8 percent in May while the cost of new cars and used cars both fell 0.2 percent.

Despite the weak report, analysts noted that April's sales numbers were revised significantly upward, especially in the "control" group of goods, which excludes gasoline, cars and building materials.

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