US consumer prices up slight 0.1% in August

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USA producer prices unexpectedly rose in August, but the overall trend in producer inflation remains tame, cementing financial market expectations that the Federal Reserve will cut interest rates again next week to support a slowing economy. "We see scope for more (monetary policy) easing".

Echoing similar sentiments, Devendra Kumar Pant, Chief Economist with India Ratings & Research, said that with first quarter GDP growth falling to 5 per cent and private final consumption expenditure growth declining to 3.1 per cent, the pressure will be on the RBI to take monetary measures to support growth.

Commenting on the inflation data, Icra's principal economist Aditi Nayar said with the CPI recording only a mild increase in August 2019 despite the sharp uptick in the food inflation, "we continue to expect the RBI's Monetary Policy Committee (MPC) to reduce the repo rate by 15-25 bps in the October 2019 policy review, given the continuing concerns related to economic growth".

Treasury Secretary Steven Mnuchin said on Thursday President Donald Trump was prepared to keep or even raise tariffs on Chinese imports amid ongoing trade talks.

The dollar fell against a basket of currencies after the European Central Bank launched new stimulus but failed to live up to some dovish financial market expectations.

Despite the economy's waning fortunes, underscored by an inversion of the U.S. Treasury yield curve, employers are holding onto their workers.

Factory output growth accelerated in July by 4.3 per cent, but it remained lower than the 6.5 per cent achieved during the corresponding month of the previous fiscal.

"The labor market strongly suggests the economy continues to expand", said John Ryding, chief economist at RDQ Economics in NY.

The cumulative CPI inflation has declined to 3.11% in April-August FY2020 compared with 4.44% in April-August FY2019. Goods prices declined 0.5% last month, also the largest drop since January, after rising 0.4% in July.

Clothing costs, which had posted a big jump in June, edged up a small 0.2% in August.

The "quick estimates" of the Index of Industrial Production (IIP) for July showed that manufacturing sector output rate rose 4.2 per cent in July from a year-on-year rise of 7 per cent.

Meanwhile, the retail inflation on health was 7.84 per cent, recreation and amusement at 5.54 per cent and personal care at 6.38 per cent. This marked the third straight monthly rise of 0.3% and a pickup from earlier in 2019. It was enough to push core inflation over the past 12 months up by 2.4%, the largest 12-month increase since July 2018. The cost of new vehicles and household furnishings fell.

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