US inflation rises in February, presenting challenge for Fed

US consumer prices rose in line with estimates in February, a report released by the Labour Department showed on Tuesday.

The consumer price index (CPI), which measures changes in the prices of goods and services paid by Americans, increased by 0.4 per cent during February compared to the prior month, and by 3.2 per cent compared to February of last year. Whereas the monthly measure was in line with forecasts, the 12-month reading was slightly higher.

The core CPI, which excludes volatile food and energy prices, increased by 0.4 per cent from the previous month and by 3.8 per cent from the previous year.

A 2.3 per cent increase in energy costs helped push the headline inflation number higher.

The stronger year-over-year increase in the headline CPI for February underlines the ‘last mile’ challenge the Federal Reserve faces to reach its two per cent inflation target, as the labour market and economic growth remain resilient.

Meanwhile, the UK economy returned to the growth path in January underpinned by growth in the services and construction industries. This indicates that the country exited a technical recession, which is defined as two consecutive quarters of contraction. Gross domestic product, a measure of all the goods and services produced in the country, increased by 0.2 per cent in January, reversing a 0.1 per cent fall in December, according to figures published by the Office for National Statistics.

The GDP figures suggested “the UK economy may already have moved out of recession… with the timelier data suggesting the economy has turned a corner”, Ruth Gregory, economist at Capital Economics, said.

Finally, inflation in China turned positive for the first time in six months, largely thanks to the Chinese New Year holiday, as a surge in consumer spending pushed up prices.

Consumer inflation in the world’s second largest economy rose to 0.7 per cent on a yearly basis, the highest in almost a year and a sign that policymakers are winning the battle against deflation.

However, the producer price index fell more than expected, a 2.7 per cent decrease year-on-year, marking the 17th consecutive monthly fall in the prices paid at the factory gates, indicating that pipeline price pressures remain negative.

Analysts at ING said: “Markets were looking for a boost from food prices due to the Lunar New Year, but overall, food prices remained in negative growth for the seventh consecutive month at -0.1 per cent year on year, despite an uptick in pork and fresh vegetable prices.”

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