Easing price pressures in the US are dampening the prospects for further increases in interest rates, according to the latest US producer price index.
The core rate for the index - which excludes the volatile impact of food and energy prices - unexpectedly fell by 0.3 per cent in July compared with June, the first monthly decline since October of last year.
Including food and energy prices, the producer price index rose by just 0.1 per cent, compared to 0.5 per cent in June. The figures for the index - a gauge of prices received by farms, factories and refineries - were well below Wall Street analysts' expectations.
In another sign of easing price pressure, the New York Federal Reserve Bank reported that its so-called "Empire State" index of manufacturing activity has declined in August.
Analysts said the two latest developments would discourage the US Federal Reserve from any further increase in interest rates.
"The combo package is pretty positive for a Fed continued pause," Jim Paulsen, chief investment officer at Wells Capital Management, said yesterday.
Following a two-year run of interest rate increases, the Federal Reserve last week indicated that it would pause and examine price pressures in the US economy before implementing any further increases.
Meanwhile, Britain's inflation rate slowed in July as lower furniture prices offset higher energy costs.
The UK Office of National Statistics yesterday confirmed that compared with June, consumer prices fell by 0.1 per cent in July, lowering the annual rate of inflation to 2.4 per cent from 2.5 per cent in June, though this is still above the Bank of England's 2 per cent target rate.
In spite of the latest trend, analysts predicted that further rises in British interest rates were likely. "Given the lack of spare capacity in the economy and that inflation will be pushing toward 3 per cent by the end of the year, the Bank of England maybe won't have any choice but to raise rates once more," Commerzbank economist Peter Dixon said yesterday.
