US inflation hits fastest pace in 4 years
Retail prices picked up, factory output rose in January
US consumer prices in January rose at their fastest pace in nearly four years, a fresh sign that a pickup in inflation may be approaching, Labor Department figures showed yesterday. The consumer price index showed a 0.6 percent gain for the month, the third consecutive monthly acceleration and the largest increase since February 2013.
January also saw its largest 12-month CPI increase in nearly five years, rising 2.5 percent over January 2016. Even excluding the more volatile categories of food and energy, prices were still up by almost as much at 2.3 percent. The new figures may help persuade US central bankers to tighten monetary policy more quickly this year after a decade of nearzero interest rates.
Meanwhile’ US retail sales rose more than expected in January as households bought electronics and a range of other goods, pointing to sustained domestic demand that should bolster economic growth in the first quarter. The economy’s improving prospects were also underscored by other data yesterday showing consumer prices last month recording their biggest increase in nearly four years. The upbeat reports came a day after Federal Reserve Chair Janet Yellen appeared to put an interest rate hike next month on the table. “The US economy has quite a bit of momentum as the year began,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “This morning’s reports add a little more impetus for the Fed to move this quarter. Still not our call but it is becoming very interesting.”
The Commerce Department said retail sales increased 0.4 percent last month. December’s retail sales were revised up to show a 1.0 percent rise instead of the previously reported 0.6 percent advance.
Last month’s fairly solid sales came despite motor vehicle purchases posting their biggest drop in 10 months. Compared to January last year retail sales were up 5.6 percent. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.4 percent after a similar gain in December. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast retail sales ticking up 0.1 percent and core sales gaining 0.3 percent last month.
Consumers in the United States shelled out a total $472.1 billion in January, a 0.4 percent increase over the prior month. Auto sales, however, saw their sharpest decline in eight months, falling 1.4 percent. Excluding the more volatile auto category, the overall increase in retail sales for the month would have been twice as large at 0.8 percent. Still, monthly sales were stronger than expected. Analysts had forecast growth of only 0.1 percent.
US manufacturers cranked out more steel, machinery and electronics last month as factories appear to be rebounding after two years of stagnation. Factory output rose 0.2 percent in January, its second straight increase, the Federal Reserve said yesterday. While modest, the gain is equal to the industry’s growth in all of 2016. Manufacturers are benefiting from increased spending by businesses on industrial machinery and other equipment. Oil and gas drillers are building new rigs now that energy prices have stabilized after falling sharply two years ago. Cutbacks by drillers had caused orders for steel pipe and other drilling equipment to plummet. And weak overseas economies in Europe and China also cut into exports. Yet those trends have largely reversed. Mining production rose 2.8 percent last month, pushed higher by a solid gain in oil and gas drilling. Utility production fell 5.7 percent last month, as unseasonably warm weather reduced demand for heating. A broader measure of industrial production, which includes manufacturing, mining and utilities, dropped 0.3 percent. Other measures of manufacturing output show steady improvement. Factories expanded at the fastest pace in more than two years last month, according to a private survey of purchasing managers. That survey also found that factories are hiring more. And a separate gauge of new orders for US factory goods rose in December at a solid pace, lifted by greater business spending on big-ticket items such as machinery and computers. A strong dollar has weighed on exports because it makes US goods more expensive overseas, though manufacturers appear to be adjusting to the currency’s strength.
Home builders pessimistic
US homebuilders are feeling a bit less confident this month, reflecting a dimmer outlook on sales in the months ahead and fewer would-be buyers dropping by builders’ sales offices. The National Association of Home Builders/Wells Fargo builder sentiment index released yesterday fell to 65 this month. That’s down two points from a revised reading of 67 in January. Readings above 50 indicate more builders view sales conditions as good rather than poor. The index has been above 60 since September and reached the highest level in 11 years in December.
The February number falls shy of analyst predictions. They expected the index to hit 68, according to FactSet. Builders’ view of sales now and over the next six months also fell, as did a gauge of traffic by prospective buyers. —Agencies