US consumer prices rose modest 0.2 percent in February

Wednesday, 14 Mar, 2018

Markets now agree with Fed projections for three hikes, though a more aggressive inflation move could trigger additional increases. Inflation rate for "pan, tobacco and intoxicants" eased to 7.34 per cent in February, while housing inflation was recorded at 8.28 per cent in February.

The Consumer Price Index, which tracks the costs of household goods and services, rose 0.2 per cent for the month, which matched analyst expectations but was down from January's sharp 0.5 per cent gain.

Core consumer prices, which exclude food and energy prices, also edged up by 0.2 percent in February following a 0.3 percent increase in January. The year-on-year increase in the so-called core CPI was unchanged at 1.8 percent in February.

The dollar index, which measures the greenback against a basket of currencies, was up 0.2 per cent. The greenback was also hurt by President Donald Trump's firing of Secretary of State Rex Tillerson after a series of public rifts over policy on North Korea, Russia and Iran.

"Nonetheless it is still a useful gauge in establishing when and how the price pressures we've been seeing build up in USA supply chains start to filter down into the wider economy". The RBI in its monetary policy review last month had estimated retail inflation at 5.1% for January-March 2018.

What sets apart IIP growth in January is the strong growth registered in consumer durables, at 8% compared with 1.4% in the previous month.

Prime Minister Narendra Modi, who faces a general election next year, is trying to push up economic growth while keeping inflation under control. Economists polled by Bloomberg News had expected an annual reading of 4.7 percent. The potential for four rate increases this year also held steady at around 25%.

As per 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. What does this mean for the Fed and the US Dollar? Our forecast for February is 14.71%, which implies a 2.80pts increase in the Consumer Price Index to 251.2pts.

India's factory output grew at a robust pace for the third straight month, at 7.5% in January, while retail inflation surprisingly slowed for the second consecutive month to 4.4% in February, signalling that the economy may be set on a strong recovery path.

The core CPI was restrained by a moderation in rents. The indexes for shelter, apparel and motor vehicle insurance all rose and contributed to the monthly increase.

Emerging market stocks rose 0.13 percent. Indexes that declined over the past year include communication, new vehicles, airline fares, and used cars and trucks. This view supported prices for awhile but could not overcome lingering fears about rising USA production.