U.S. consumer prices slow as gasoline falls

Thursday, 15 Mar, 2018

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in February on a seasonally adjusted basis after rising 0.5 percent in January, the U.S. Bureau of Labor Statistics reported today.

Consumer spending, which accounts for more than two-thirds of US economic activity, appears to have slowed at the start of the year after accelerating at a 3.8 percent annualized rate in the fourth quarter.

Central bankers are widely anticipated to raise borrowing costs by a quarter percentage point next week, and they will update projections for the economy and interest rates. Yields fell on uncertainty over USA foreign policy going forward, which will involve negotiations on trade, and with North Korea.

It still is the best of times for the USA economy for in spite of President Donald Trump's micro-management the S&P 500 index remains 3.4% in the green so far this year and 10-year bond yields have fallen from the 2.94% high recorded in late February to 2.84% overnight.

"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", predicted Gregory Daco, chief economist at Oxford Economics.

The Federal Reserve wants to see inflation at roughly a 2 percent pace, as a hedge against deflation, which can bring down wages as well as prices.

However, the food index increased by 17.59 percent (year-on-year) in February, down by 1.33 percent points from rate recorded in January 2018 (18.92) percent.

In February, gasoline prices fell 0.9 percent after rebounding 5.7 percent in January. As has been true for quite a while, the inflation in goods and the inflation in services diverge sharply.

The data show that inflation is gradually accelerating. The retracement in February average hourly earnings, per the latest payrolls report, serves as a reminder that wage pressures remain tame. Expected Moderation in Core Index Although core inflation was flat at 12.09% YoY in January, it masked a 0.68% month-month growth (vs. 0.59% in December 2017). Hospital services, another component watched by analysts, fell 0.5 percent. In particular, apparel prices rose 1.5% in February. Sales at restaurants and bars rose 0.2 percent.

State-run SBI highlighted the risks of inflation targeting framework in its note, saying the mark-to-market losses incurred by banks due to tightening of rates on policy expectations have exposed it to risks on the financial stability front.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services.