US inflation rises to 1.8% in June

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US shoppers
Image caption,
Rising clothing prices are one factor driving up the rate of inflation

Annual US consumer price inflation hit 1.8% in June as clothing, petrol and services costs all increased.

That was up from the 1.4% figure recorded in May but still below the target inflation figure of 2%.

The consumer price index increased by 0.5% in June from the month before.

The US economy is growing more strongly than most of Europe, but unemployment has put downward pressure on wages, making it harder for retailers and other firms to raise prices.

Most of the month-on-month price increase was attributed to the rising cost of petrol.


Taking out energy and food, core consumer prices increased by 0.2% between May and June, giving an increase over 12 months of 1.6%, the slowest pace in two years.

"It's comforting to see some stabilisation in core services prices," said Laura Rosner, economist at BNP Paribas in New York, adding that "we expect personal consumption to remain weak".

However, while low inflation might be good for consumers, it can hurt corporate profits. Rising prices help raise revenue figures which can boost companies' top lines.

As second quarter earnings season gets underway, corporate profits have already proven to be slightly lacklustre, with Coca-Cola reporting a dip in earnings.

This is in line with what many economists see as a summer slump.

Already, growth expectations for the second quarter have been revised downward, with many hovering around the one percent mark.

Temporary lull

"Obviously, the Fed is keeping a pretty close eye here," UBS US economist Kevin Cummins told the BBC.

Federal Reserve chairman Ben Bernanke and most of his colleagues view the current low inflation rate as temporary, and see both growth and prices picking up later in the year.

In June, the Fed said it planned to keep the short-term interest rate at a record low close to zero until the jobless rate falls below 6.5% - provided inflation remained under control.

It also said it would continue purchasing $85bn in mortgage and Treasury bonds each month, with the aim of lowering long-term interest rates to encourage more borrowing and spending.

"I don't necessarily think that this morning's report will change the Fed's tilting toward tapering their asset purchases," said Mr Cummins.

The programme has been keenly watched by the financial markets, and when Mr Bernanke last week reiterated that there would be no immediate exit from the stimulus measures, it sent stocks higher.