In the US there is a steady build-up of inflationary pressures, with import prices at their highest level in around four years as a strong dollar and oil prices weaken. Retail sales increased 0.5 per cent in May for the second straight month. Excluding the car industry, petrol, building materials and food services, retail sales rose a stable 0.4 per cent last month.

As Timothy Faraday, Chief Economist at Global Associates said, “The first-quarter disappointment in consumer spending appears to be short-lived as retail sales tally with the consumer spending element of gross domestic product. They were previously reported to have risen 0.9 per cent in April but overall retail and core sales gained only 0.3 percent last month.”

The dollar’s volatility and oil prices between mid-2014 and the end of 2015 have dampened inflation, but with the dollar weakening 1.5 per cent against the currencies of the US’ principal trading partners and oil with prices rlsing to $50 per barrel before weakening again, the signs of healthy domestic demand and rising imported inflation is being well received by the Fed, who have organised a two-day meeting this week to discuss the issue.

May’s fragile employment figures have ruled out an interest rate increase at this meeting, but the steady flow of positive economic reports imply that a rise in July is still possible. However, increasing by only 38,000 jobs in May, the US economy has experienced its smallest employment gain since late 2010.

Global Associates believe this data will do little to hasten the Fed into raising interest rates this month, but it could set the stage for an increase in July.
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