Retail inflation at 4-mth low of 4.44% on cheaper food, fuel

Lloyd Doyle
March 14, 2018

According to the use-based classification, the growth rates in January 2018 over January 2017 are 5.8 per cent in primary goods, 4.9 per cent in intermediate goods and 6.8 per cent in infrastructure/ construction goods.

As inflation slowly makes its way into the supply chain, retail apparel prices increased 1.5% in February following a 1.7% rise in January, the U.S. Bureau of Labor Statistics reported Tuesday in its Consumer Price Index (CPI). For fruits, it was 4.80 per cent against 6.24 per cent. Inflation for fuel and light category was at 6.80 per cent in February against 7.73 per cent in January.However, the rate of price increase was higher for transport and communication services at 2.39 per cent against 1.97 per cent in January.

Core consumer prices, which exclude food and energy prices, also edged up by 0.2% in February following a 0.3% increase in January. The highlighted 2 percent level is the Federal Reserve's Core inflation target for the CPI's cousin index, the BEA's Personal Consumption Expenditures (PCE) price index.

One month ago, reports about an unexpectedly sharp rise in U.S. consumer prices shocked the markets. However, the U.S Dollar and major currencies could resume their known trading realms which have been quite the past couple of sessions.

These were partly offset by a decline in medical costs, with hospital care and prescription drugs both falling in addition to a 0.5 per cent drop in mobile phone plan prices, the second monthly decline in a row.

CIBC Research discusses the reaction to today's US CPI data for the month of February. There were still very strong expectations of a rate increase at next week's FOMC policy meeting, with futures markets indicating an 86% chance of a further 0.25% hike in rates.

The Fed has forecast three rate hikes this year. Economists had expected consumer prices to rise by 0.2%.

Wall Street stocks dipped lower to stand little changed, and there were underlying concerns surrounding strains in credit markets as the LIBOR-OIS spread widened to a fresh six-year high of around 48.5 basis points. Economists polled by Bloomberg News had expected an annual reading of 4.7 percent. It expects gross value added - a key measure of growth - to increase 7.2 percent next fiscal year from 6.6 percent this year.

"Solid domestic economic momentum and the impulse from oncoming fiscal stimulus will underpin a gradual build in inflation toward the Fed's 2 percent target", said Gregory Daco, chief economist at Oxford Economics in NY. What does this mean for the Fed and the US Dollar?

In men's, price increases of 4.3% in shirts and sweaters and 1.2% in trousers and shorts were partially offset by decreases of 0.8% in furnishings and 0.2% in the suits, sport coats and outerwear group. Food prices were unchanged, with the cost of food consumed at home dropping 0.2 percent.

The core CPI was restrained by a moderation in rents.

The index for all items less food and energy rose 1.8 percent over the past 12 months, the same figure as the prior 2 months.

Households also paid less for healthcare.

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