Kuwait- US consumer prices rose higher than expected in January

Angelo Anderson
February 15, 2018

"This was 0.24 per cent points lower than the rate recorded in December (15.37 per cent) making it the twelfth consecutive slowdown in the inflation rate though still positive in headline year on year inflation since January 2017".

USA consumer prices rose by more than projected in January as apparel costs jumped the most in almost three decades, adding to signs of an inflation pickup that has roiled financial markets this month.

"Consumers can make up for lost time", said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "Volatility shocks" have foreshadowed slower economic growth, or even a contraction, three times since 1998, Bloomberg's Ben Emons wrote. That could lead to higher borrowing costs for individuals and businesses.

The US government was wrong to cut taxes at this stage of the business cycle given the economy is near full employment, but will nonetheless help lift growth this year and give the Federal Reserve more reason to raise rates, a Reuters poll of economists found. And often, so does the economy.

Investors worry that inflation, which is seen as being driven by a tightening labor market and increased government spending, could force the Fed to be more aggressive in raising rates this year than now anticipated. Most analysts expect the Fed to resume raising rates in March. As of its most recent release, it's not only lower than the CPI, it's below the Fed's target.

"Inflation has to be put into context", said Joseph LaVorgna, chief economist for the Americas at Natixis in NY. "The fact that interest rates could move up so quickly is a legitimate reason for the market to get spooked".

As fresh goods hit the stores after the holiday rush, retail apparel prices rose a seasonally adjusted 1.7% in January-the biggest monthly increase since 1990-compared to the promotional frenzy in December, the U.S. Bureau of Labor Statistics said Wednesday in its Consumer Price Index report.

US retail sales dropped 0.3 percent in January, losing anticipated gains from December 2017. The personal consumption expenditures price index is calculated differently and includes more services, such as healthcare paid for by employer-provided insurance, and Medicare and Medicaid. Gas prices, up 5.7 percent, drove much of that increase. "The last ten years was below target inflation and now the expectations are adjusting upwards, which means the Fed is not as friendly".

Although the volatile nature of food and fuel prices makes predicting the exact path of headline inflation hard, core inflation will continue to accelerate further in the coming months, the economist noted.

But vehicle and parts sales fell 1.3 percent from December, the largest drop since August, even as gas stations saw a healthy bump, rising 1.6 percent in the month. Stripping out food and energy from the CPI gives us the core CPI, which is seen as a measure of the underlying inflation trend. That was up from 0.2 percent the previous month.

Wednesday's rally, which materialized despite a report that showed consumer prices in January rose faster than expected, continues a rebound following last week's massive market plunge that had knocked the Dow down more than 10% from its high and caused market fear to spike.

Other reports by Iphone Fresh

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