A Third Rate Hike May Not Happen Given June CPI Results

The likelihood of the Federal Reserve raising interest rates for a third time this year is diminishing, given consumer prices that didn’t change in June and a decline in retail sales for two months in a row.

According to a report in Reuters, the economy is expected to pick up during the second quarter, with data late last week showing that industrial production increased in June, thanks in part to an increase in oil and gas drilling. Still, with the pricing data in June, it may temper interest rate hike expectations. Citing the Labor Department, Reuters reported the Consumer Price Index’s (CPI) lack of move came amid a further decline in the cost of gas and mobile phone services. The CPI declined 0.1 percent in May, and without a uptick in June it could raise concerns among officials in the Fed.

The news report noted that in the twelve months through June, the CPI jumped 1.6 percent, which marks the smallest gain since October of last year. The Consumer Price Index has been falling compared to a year ago since February, when it reached 2.7 percent and marked the largest increase in five years.

Meanwhile the core CPI, which excludes food and energy costs, increased 0.1 percent in June, which marks the third month in a row it had the same percentage gain. Year over year it increased 1.7 percent. The cost for airline tickets, clothes, household furnishing, new cars and used cars and trucks also declined in June.

During the month of June, gasoline prices declined 2.8 percent, which is the second month in a row of declines. Food prices did not move after increasing for five months in a row. Cellular phone services decreased 0.8 percent.

Earlier last week, Federal Reserve Chair Janet Yellen said the drop off in inflation and retail sales recently was due “to a few unusual reductions in certain categories of prices” that would eventually be removed from the calculation, reported Reuters.