US CPI misses forecasts again in June

Consumer price inflation in the US slipped a tad last month, possibly adding to doubts a third US central bank interest rate hike at the end of 2017.

The headline rate of US CPI slowed from 1.7% year-on-year in May to 1.6% for June, according to the Department of Labor.

That was shy of economists' forecasts calling for CPI to remain unchanged at 1.7%.

Versus May, CPI was flat.

At the 'core' level, which strips out the more volatile food and energy components, CPI rose by 0.1% on the month (consensus: 0.2%) and at an annual pace of 1.7% (consensus: 1.7%).

In a preview of Friday's CPI release, economists at Citi had told clients that a fourth downside miss in CPI would reinforce expectations in the market regarding the scant upside potential for inflation.

Citi economists's Andrew Hollenhorst and Andrew Labelle said "the probability of a December rate hike would fall and Fed officials would likely move away from characterizing slowing inflation as "transitory." Depending on the remaining two CPI prints released before the September FOMC (July and August), the "median dot" at the September meeting could fall to indicate no further hikes in 2017."

However, the pair were closely watching shelter and medical services' prices, both of which had recently slowed, saying the behaviour of both would be most meaningful.

According to the Department of Labor, shelter prices rose by 0.2% on the month, the same as in May, but those for medical care services jumped by 0.3% after last month's 0.1% dip.

For her part, analyst Blerina Uruci at Barclays Research said she expected inflation to gradually start to pick-up towards the end of 2017, pointing to various factors, including the fact that the so-called 'output gap' was nearly closed.

However, Uruci added: "Turning to the Fed, communications from FOMC members have been clear that they view the recent weakness in inflation as transitory and that they remain focused on a tightening policy path. And we believe the Fed could start balance sheet runoff as early as the September meeting.

"The recent softness in core inflation puts at risk our call that the Fed will be able to raise rates for a third time in December, in particular if the inflation trend fails to firm up during the second half of the year."