U.S. inflation data shows signs of pick-up as Fed meets

Core consumer prices in the U.S., or core CPI which excludes food and energy, increased above expectations during the month of February, the U.S. Department of Labor said on Wednesday.

The consumer price index, a key indicator of inflation, declined 0.2% last month after being unchanged in January.

The Commerce Department said housing starts increased 5.2 per cent to a seasonally adjusted annual pace of 1.18 million units last month, the highest level since last September.

Outside of food and energy, the 0.3 per cent rise in core inflation was led by a 1.6 per cent jump in clothing costs, the largest increase since February 2009.

And compared to the prior year, headline CPI rose 1%, and fell 0.2% month-on-month, as expected.

The second month of broad increases in the core CPI was driven by a 0.3 percent increase in rents, which followed a similar gain in January.

Wednesday’s report showed energy costs fell 6% in February from a month earlier and were down 12.5% from a year earlier.

We believe the spike in core and food inflation relative to the previous years is attributed to the exchange rate pass-through which has affected consumer prices in both sub-indices through the imported/processed food components and has also pervaded domestic prices (noting the 11.34% y/y and 1.38% m/m rise in domestic food prices). “We think the Fed will resume tightening in June”. But it left rates unchanged in January.

On the other hand, the report said core prices were up 2.3 percent year-over-year in February, reflecting an acceleration from the 2.2 percent growth reported for January. The Fed, however, isn’t expected to bump up its benchmark rate at a meeting that ends Wednesday.

Also eliminating trade services, producer costs rose 0.1 percent in February, and were up 0.9 percent over the past year.

Faster inflation is usually a signal that the labor market and economy have improved to the point that companies need to boost prices in order to keep up with rising wage pressures. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders. Overall prices haven’t risen since November.

Projections for producer prices in the Bloomberg survey of 65 economists ranged from a drop of 0.4 percent to an advance of 0.2 percent.