US consumer prices rise modest 0.2% in February

US consumer prices rise modest 0.2% in February

USA consumer price growth slowed in February amid a decline in gasoline prices and a moderation in the cost of rental accommodation, the latest indication that an anticipated pickup in inflation probably will be only gradual.

Strong inflation numbers in January had sparked fears that price pressures were accelerating, leading financial markets to expect a more aggressive pace of interest rate increases from the Federal Reserve than is now anticipated.

In December, the index of industrial production (IIP) grew 7.1%, while consumer price index (CPI)-based inflation had slowed to 5.1% in January.

The core gauge rose less than in the prior month despite apparel costs, which helped drive the outsize gain in January, advancing 1.5% in February following a 1.7% increase.

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Analysts expect food inflation to rise because of the seasonal upturn in vegetable prices in the summer, an increase in minimum support price of summer crops that will reflect with a lag, and an upswing in global wheat prices.

The Consumer Price Index data will be released shortly at 12:30 GMT, and have an impact on the broad markets globally.

The dollar slipped against a basket of currencies on the inflation data. Investors should also keep in mind Industrial Production numbers will come from China early tomorrow, and Germany will release potentially intriguing CPI numbers on Wednesday. The higher than expected rate was driven largely by the increase in the cost of food items, which shot up by 0.87% Month-on-Month. We expect core inflation to ease further in February, given improvement in FX liquidity; external reserves grew by 4.44% month-on-month, from USD40.69bn to USD42.49bn. There were still very strong expectations of a rate increase at next week's FOMC policy meeting, with futures markets indicating an 86% chance of a further 0.25% hike in rates. Policymakers consider the labor market to be near or a little beyond full employment. Forecasts ranged from 4.4 percent to 5.6 percent. Even at the use based classification the growth is broad based as with the exception of intermediate goods all other segments have shown growth either in high single digit or greater than high single digit. The strength of the 30-year reopening in spite of the $1 billion increase in supply suggests firm demand for long-dated bonds, and spurred additional bond buying in the open market. What does this mean for the Fed and the US Dollar? Core prices were up 1.8% on the year. Over shorter horizons, the core CPI has accelerated. Hourly pay rose a modest 2.6% in February from a year earlier, down from a 2.8% gain the previous month.

Households also paid less for healthcare. Italian and Spanish stocks rose 0.3 to 0.4 per cent, while Britain's FTSE was a laggard, down 0.1 per cent. Indexes that declined over the past year include communication, new vehicles, airline fares, and used cars and trucks. Industrial output growth for January also recorded a bump up, rising to a two-month high of 7.5 per cent after moderating in the previous month to 7.1 per cent.

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