U.S. Treasurys saw early buying Friday, driving yields firmly lower, as a weak report on retail sales and inflation raised fresh questions about the pace of the Federal Reserve's plans to normalize monetary policy by lifting rates and shrinking its asset portfolio. On a month-on-month basis, the core CPI is expected to rise 0.2 percent after a 0.1 percent gain the previous month.
She said it was premature to reach the judgment that the United States is not on track to reach its target of 2 per cent inflation over the next few years.
Slow inflation and stagnant wage growth has baffled economists given the very low unemployment rate, but U.S. central bankers continue to say they expect inflation to rebound allowing them to raise the benchmark interest rate gradually.
The annualized rate of inflation in several CPI components over the past three months showed declines of 4.9 per cent in apparel, 5.5 per cent in used cars and trucks and 4.1 per cent in professional services, said Heidi Learner, chief economist in NY for brokerage Savills Studley, a unit of Savills Plc.
Yellen said hitting 3 percent growth in the next five years "would be wonderful".More news: Dow hits another record as stocks close higher
Economists had forecast the CPI edging up 0.1 per cent last month and climbing 1.7 per cent from a year ago.
Annualized consumer price inflation (CPI) unexpectedly eased in June, while the core CPI repeated its prior reading, official data showed on Friday.
The U.S. dollar remained broadly on the back foot as traders preferred to play the risk-on trade against the yen, especially before key U.S. inflation data later today that may skew interest rate expectations in the markets.
Political strategists say they expect a tax-reform bill to be presented in the fall and approved by next year, but the markets have doubted whether tax reform is still viable based on how long it has taken Congress to revise Obamacare.
The disappointing data supported the caution raised this week by several policy-makers, including Fed Chair Janet Yellen about the softening in inflation since February.More news: White House Pressures Congress to Soften Russia Sanctions Bill
In June, gasoline prices fell 2.8 per cent, decreasing for a second straight month. The Australian dollar rose 1.22 percent to $0.7823, well on track to post its best weekly performance in four months.
There were also decreases in airline fares and prices for apparel, household furnishings, new motor vehicles, and used cars and trucks.
The most-active USA gold futures for August delivery futures settled up $10.20, or 0.84 percent, at $1,227.50 per ounce. In particular, core retail sales which exclude automobiles, declined by 0.2% instead of posting an equivalent percentage improvement that was expected by analysts.
In the retail sector, Americans in June spent less on restaurants, bars and groceries, while the transition from department stores to online retailers like Amazon continued. Without autos, retail sales are expected to be up 0.2 percent.More news: Sen. Chuck Grassley to send Trump Jr. letter asking him to testify