Most Federal Reserve officials expressed concern at a meeting last month that the outlook for the US economy was weakening, and many said the Fed should soon cut rates if uncertainty continued to weigh on growth.
"Most indicators suggest that inflationary pressures are benign - commodity prices are declining and the strong USA dollar is weighing on import prices and domestic goods prices", Levy said.
Market participants will receive a gauge on US producer price changes on Friday, a day after Federal Reserve Chair Jerome Powell concluded testimony to Congress reiterating central bankers' concerns of persistently below-target inflation.
Powell's statement Wednesday boosted the USA stock market as it confirmed for many investors their expectations that the Fed will cut short-term rates for the first time in a decade at its next meeting in late July.
Gus Faucher, chief economist at PNC bank, said there were sound economic reasons for a cut.
The Fed raised rates four times in 2018, drawing the ire of President Donald Trump, who has called the central bank clueless by pursuing needless rate hikes that have slowed economic growth and depressed stock gains.
The core consumer price index (CPI), excluding food and energy prices, rose 0.3% in June over the month prior, exceeding expectations.
The June jump in core CPI reflected solid gains in a range of goods and services, including apparel, used cars, and trucks. There were also increases in the cost of healthcare and rents.
"The June CPI report vindicates Federal Reserve Chairman Jerome Powell's earlier assessment that some of the recent slowdown in inflation was at least partially due to transitory factors".
The overall consumer price index rose 0.1% in June, held back by cheaper gasoline and food.
USA crude futures settled 23 cents lower, or 0.38%, at $60.20 a barrel.
ASB senior economist Mark Smith also picked annual inflation to "tick up" to 1.7%, and core inflation measures were expected to be clustered around, or slightly below, 2% year on year.
The New Zealand two-year swap rate was at 1.3123 per cent from 1.3242 late yesterday, while the 10-year swap rate was at 1.7450 per cent from 1.7400 per cent.
The central bank last month downgraded its inflation projection for 2019 to 1.5% from the 1.8% projected in March. Powell also said 'there is a risk that weak inflation will be even more persistent than we now anticipate'.
Core prices had been expected to edge up by 0.2 percent.
"One of the primary reasons the Fed is going to cut rates is that inflation expectations have fallen, so if expectations bounce back it may limit the scope of the impending easing cycle", said Eric Winograd, senior economist at AllianceBernstein in NY.
Just last month, Trump told NBC's Meet the Press "I don't think [Powell] has done a good job", and that he has the authority to fire him if he wants to, but also denied explicitly threatening Powell's job.
The other currencies to have gained against the United States dollar are the South Korean Won (0.85%), the Japanese Yen (0.5%), the Indonesian rupiah (0.5%), the Philippines peso (0.46%), the Taiwan dollar (0.37%), the Thai Baht (0.31%), the Malaysian ringgit (0.27%), the Singapore dollar (0.24%,) and the China Offshore 0.11% and the China Renminbi (0.11%).