US data points to firm­ing econ­omy, in­fla­tion

The Pak Banker - - 6BUSINESS -

Un­der­ly­ing U.S. in­fla­tion in­creased more than ex­pected in Fe­bru­ary as rents and med­i­cal costs main­tained their up­ward trend, which could keep the Fed­eral Re­serve on course to grad­u­ally raise in­ter­est rates this year.

Other data on Wed­nes­day showed the hous­ing mar­ket con­tin­u­ing to strengthen last month and man­u­fac­tur­ing sta­bi­liz­ing. The Fed kept in­ter­est rates un­changed on Wed­nes­day, but ac­knowl­edged that in­fla­tion "picked up in re­cent months." New pro­jec­tions from the U.S. cen­tral bank showed pol­i­cy­mak­ers ex­pected two quar­ter-point rate in­creases by year-end, half the num­ber seen in De­cem­ber. The com­bi­na­tion of stir­ring in­fla­tion, a steady hous­ing sec­tor and tight­en­ing la­bor mar­ket have raised the prob­a­bil­ity of a rate hike in June.

"It looks like the Fed re­mains re­ally cau­tious, they are not pre­pared to move be­fore June at the ear­li­est. To­day's num­bers, es­pe­cially the in­fla­tion re­port, is a warn­ing that the days of no price pres­sures are be­hind us," said Joel Naroff, chief econ­o­mist at Naroff Eco­nomic Ad­vi­sors in Hol­land, Penn­syl­va­nia. The La­bor Depart­ment said its Con­sumer Price In­dex, ex­clud­ing the volatile food and en­ergy com­po­nents, rose 0.3 per­cent last month af­ter a sim­i­lar gain in Jan­uary.

That lifted the so-called core CPI 2.3 per­cent in the 12 months through Fe­bru­ary, the largest in­crease since May 2012, af­ter it ad­vanced 2.2 per­cent in Jan­uary. Econ­o­mists polled by Reuters had fore­cast the core CPI ris­ing 0.2 per­cent last month and in­creas­ing 2.2 per­cent from a year ago.

The Fed has a 2 per­cent in­fla­tion tar­get and mon­i­tors a price mea­sure that has also pushed higher in re­cent months. The Fed raised its bench­mark overnight in­ter­est rate in De­cem­ber for the first time in nearly a decade. Fed Chair Janet Yellen told re­porters tem­po­rary fac­tors were likely be­hind the re­cent run-up in prices, adding that pol­i­cy­mak­ers ex­pected a grad­ual rise in in­fla­tion.

"I want to warn that there may be some tran­si­tory fac­tors that are in­flu­enc­ing that. So I'm wary and haven't yet con­cluded that we have seen any sig­nif­i­cant uptick that will be last­ing in, for ex­am­ple, in core in­fla­tion," said Yellen. The dol­lar fell to a one- month low against a bas­ket of cur­ren­cies, while prices for U.S. Trea­sury debt gained. U.S. stocks rose, with home­build­ing shares such as D.R. Hor­ton Inc (DHI.N) and Len­nar Corp (LEN.N) also get­ting a boost from the bet­ter hous­ing data.

In a sep­a­rate re­port, the Com­merce Depart­ment said hous­ing starts in­creased 5.2 per­cent to a sea­son­ally ad­justed an­nual pace of 1.18 mil­lion units last month, the high­est level in five months.

Ground­break­ing ac­tiv­ity had been held back by ad­verse weather. While the re­bound in hous­ing starts of­fered a lift to first-quar­ter gross do­mes­tic prod­uct growth es­ti­mates, that was off­set by a drop in util­i­ties out­put as tem­per­a­tures warmed up in Fe­bru­ary. First-quar­ter growth is fore­cast around a 2 per­cent an­nual rate, an ac­cel­er­a­tion from the 1.0 per­cent rate logged in the fi­nal three months of 2015.

In a third re­port, the Fed said in­dus­trial pro­duc­tion de­clined 0.5 per­cent as min­ing and util­i­ties tum­bled. In­dus­trial pro­duc­tion rose 0.8 per­cent in Jan­uary. But man­u­fac­tur­ing out­put in­creased 0.2 per­cent last month af­ter spik­ing 0.5 per­cent in Jan­uary.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.