USA retail sales slide 0.3 per cent, biggest drop in 16 months

US Retail Sales Unexpectedly Drop 0.3% In May

US Retail Sales Unexpectedly Drop 0.3% In May

US consumer prices are rising at the slowest pace in half a year and consumers last month showed renewed signs of caution, potential complications for the Federal Reserve as it charts out plans for short-term interest rates through the rest of the year.

USA consumer prices fell more than expected in May, according to the Department of Labor's monthly consumer price index (CPI). The core CPI increased 1.7 per cent year-on-year, the smallest rise since May 2015, after advancing 1.9 per cent in April. Still, looking at wider core services, prices rose 0.2 percent in May, stronger than the earlier two months' pace.

Fed officials on Wednesday lowered their projection for inflation this year to 1.6% from 1.9%, though they still expect it to hit 2% by the end of 2018. Owners' equivalent rent of primary residence advanced 0.2 per cent after a similar increase in April. The U.S. dollar has usually softened in 2017; however, this is not yet showing up in higher prices at the consumer level, said TD Economics.

Most retail names are down roughly 1 percent on the weaker-than-expected retail sales.

In a separate report, the Labor Department said its Consumer Price Index dipped 0.1 per cent, weighed down by declining prices for gasoline, apparel, airline fares, communication and medical care services, among others.

The dollar index was last down 0.6 percent at 96.437, after earlier touching its lowest since November 9 at 96.323.

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The second drop in the CPI in three months could worry Federal Reserve officials, who have previously viewed the weakness in inflation as transitory. Some economists suggested that even though the Fed foresees one more rate hike this year, the persistently low inflation may lead it to leave rates alone until 2018. The Fed's preferred measure of inflation, tied to consumer spending, has been below 2 percent for five years and in recent months slipped back a bit.

The Fed on Wednesday increased borrowing costs for the second time this year, while acknowledging the recent moderation in inflation pressures.

In the retail sales report, auto sales fell 0.2 per cent after rising 0.5 per cent in April. Economists had forecast the CPI unchanged last month and advancing 2.0 percent from a year ago. Receipts at service stations dropped 2.4 per cent, the largest decline since February 2016.

Last month, rental costs increased 0.3 percent, matching April's gain.

The fall in headline inflation was in large part attributed to the significant decline in gasoline prices, which recorded their largest contraction since February previous year. In retail sales, broader trends are still clearly intact - home improvement and e-commerce is continuing to gain at the expense of department stores. That has led some retailers, including Macy's, Sears and Abercrombie & Fitch to announce shop closures. And April retail sales were revised upward to a 0.4 percent gain, from 0.3 percent initially reported.

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