US inflation hits Fed target
The annual rate of inflation in the US hit the Federal Reserve's target in July, rising to 2.0 per cent from 1.8 per cent the month before (release). This came as US jobless claims – a key indicator of future unemployment levels – dropped off unexpectedly, prompting fears of an imminent tapering of the Fed's asset purchasing programme.
Compared to June 2013, inflation was 0.2 per cent, down from 0.5 per cent the month before.
Source: Capital Economics
This was driven primarily by rising gasoline prices, which rose 1.0 per cent over the month. By comparison, food and new vehicles rose 0.1 per cent, energy rose 0.2 per cent and housing remainde flat.
Excluding volatile goods like food and energy, the CPI was up 0.2 per cent month-on-month and 1.7 per cent year-on-year.
At the same time, it was announced that the number filing for unemployment benefits fell unexpectedly.
Fearing this strong growth strengthened the case for an imminent tapering off of the Fed's asset purchase programme, investors began selling off Treasuries. Yields on the US 10-year hit 2.7855 per cent – the highest level since Aug 2011.
#Bond bubble about to pop? 10Yr Bund Yield Climbs to 1.89%. 10Yr Treasury Touches 2.79%, 2yr high, 10yr Gilt Yield Climbs to 2.70, 2yr high.
— Holger Zschaepitz (@Schuldensuehner) August 15, 2013
Speaking before the release, St Louis Fed president James Bullard said that there was no good reason why inflation rates have remained suppressed. He added that, in this context, the Fed would need more data before it can make a definitive decision about the tapering timeline.