15 July 2009, 18:07  Inflation expectations rise

A gauge of traders' outlook on inflation rose on Wednesday after data showed deterioration in manufacturing in New York state nearly stopped in July and U.S. consumer prices rose faster than expected in June. The increase in inflation expectations was tempered by the fact that much of June's rise in prices came from a spike in energy costs which have since retreated, analysts said. "These are backward-looking numbers. Most of it came from energy and they proved to be a transient factor," said George Goncalves, head of fixed income rates strategy with Cantor Fitzgerald in New York. The gap, or breakevens, between the yields on benchmark 10-year U.S. government notes and 10-year Treasury Inflation Protected Securities grew to 1.68 percent. This measure of long-term inflation expectations compares with 1.62 percent late on Tuesday. The U.S. Labor Department's Consumer Price Index, the government's broadest inflation gauge, rose 0.7 percent in June, more than the expected 0.6 percent increase among analysts polled by Reuters. For more see. Gasoline prices jumped 17.3 percent, their biggest monthly gain since a 20.9 percent increase in September 2005. The New York Federal Reserve's barometer of factory activity in New York state moved up to minus 0.55 in July, above a median forecast of minus 5.00 and June's minus 9.41. A reading below zero signals contraction in the state's manufacturing sector.

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