UPDATE 1-Traders pare inflation outlook after PPI falls

(Adds economist comment, background, byline)

By Richard Leong

NEW YORK, July 15 (BestGrowthStock) – Traders pared their long-term
inflation expectations on Thursday after a government report
showed U.S. producer prices fell more than expected in June,
suggesting little inflationary pressure on the horizon.

Recent data have signaled a slowing U.S. economic recovery,
resulting in economists and the Federal Reserve downgrading
their growth and inflation forecasts for this year.

Some traders, in the meantime, are betting on growing risks
of deflation, or a broad-based price decline that could lead to
an economic contraction.

The government’s producer price index fell 0.5 percent last
month from May where analysts had expected a 0.1 percent
decline. However, the core rate, which excludes volatile food
and energy prices, rose 0.1 percent, matching analyst
forecasts. See [ID:nLLAFIE622]

“This along with Wednesday’s import price report will only
add to the worries about deflation,” said Mike Feroli, an
economist at JPMorgan in New York.

The yield spread between 10-year Treasury
Inflation-Protected Securities and regular 10-year government
debt, a barometer of traders’ inflation outlook, narrowed to
1.813 percent from 1.836 percent before the release of the June
PPI report.

The 10-year TIPS breakevens ended at 1.816 percent late on
Wednesday. It has contracted from a recent wide of 2.402
percent in late April.

Stock Market News

(Reporting by Richard Leong, Editing by Chizu Nomiyama)

UPDATE 1-Traders pare inflation outlook after PPI falls