US consumer prices rise more than forecast

The figures may renew investor concerns that the Fed will raise interest rates at a faster pace than anticipated

by BLOOMBERG

WASHINGTONUS consumer prices rose by more than projected in January as apparel costs jumped the most in nearly three decades, adding to signs of an inflation pickup that have roiled financial markets this month.

The consumer price index (CPI) rose 0.5% from the previous month, above the median estimate of economists for a 0.3% increase, a Labour Department report showed yesterday. Excluding volatile food and energy costs, the so-called core gauge increased 0.3%, also above forecasts for 0.2%. It was up 1.8% from a year earlier, higher than the 1.7% estimate.

The figures may renew investor concerns that the US Federal Reserve (Fed) will raise interest rates at a faster pace than anticipated, after wage figures earlier this month sent Treasury yields spiking and started a rout in equities that pushed them into the first correction in two years. The 1.7% monthly gain in apparel prices, which account for about 3% of the CPI, was the biggest since 1990.

Other items contributing to the gain in CPI included rents and owners’ equivalent rent, which both rose 0.3% from December; medical care, up 0.4%; and motor vehicle insurance, which advanced 1.3%, the most since 2001.

The increase in the core CPI brought the three-month annualised gain to 2.9%, the fastest since 2011, according to data compiled by Bloomberg.

Retail Sales

A separate report showed US retail sales unexpectedly fell in January and December figures were revised downward, suggesting consumer spending is on a slower track in the first quarter.

Including all items, the main CPI gauge rose 2.1% from a year earlier, the same pace as in December and exceeding forecasts for a 1.9% increase.

The report follows the Labour Department’s annual revisions to CPI last week that took the December monthly increase in the core index down to 0.2%, from an initially reported 0.3%. The December gain in the main index was revised upward to 0.2% from 0.1%.

Policymakers look at the core index to better gauge underlying inflation because food and energy prices tend to be volatile. The latest report showed energy prices rose 3% from the previous month and food costs advanced 0.2%.

The two main US stock indexes endured wild swings last week on concerns that inflation would spur higher interest rates more quickly, boosting borrowing costs for companies. Even so, equities have recovered some ground, advancing for three trading sessions in a row through Tuesday.

Fed Outlook

While economists and investors have seen a Fed interest-rate hike in March as a near-certainty, the details of the latest CPI report could play a role in the timing and number of rate increases throughout 2018.

The central bank’s preferred gauge of inflation — a separate figure based on consumer purchases and issued by the Commerce Department — has mostly missed its 2% goal in the past five years. The measure excluding food and energy is also below the Fed’s target. January data are due for release on March 1.

Fed policymakers will also have February CPI data in hand before they next meet on March 20-21 in Jerome Powell’s first gathering as chairman. Powell, speaking on Tuesday at his ceremonial swearing-in, suggested that the central bank would push ahead with gradual interest-rate increases, and that officials “remain alert to any developing risks to financial stability”.

Retail sales fell 0.3% in January from the previous month, the most since February 2017, according to the Commerce Department, compared to the median estimate of economists for a 0.2% increase. December’s figures were revised to show little change, after an initially reported gain of 0.4%.—Bloomberg