Clocking over 5% mark, the CPI is now at 17-month high, mainly driven by vegetables, house rent and fuel.
Consumer durables and consumer non-durables have recorded growth of 0.9 per cent and 16.5 per cent, respectively. The Fed tracks a different index, the personal consumption expenditures price index excluding food and energy, which has consistently undershot the central bank’s 2 percent target since mid-2012. It was up 1.8 percent from a year earlier, higher than the 1.7 percent estimate.
The last interest rate rise was in November and that was the first in more than a decade.
“The main driver behind rising prices has been the fall in the pound after the Brexit vote”. Sterling rose after Tuesday’s data and was up by 0.5 percent against the dollar at 1035 GMT. Prices were forecast to gain 4.1 percent.
Consumer food prices also cooled and increased 4.7%, lower than near 5% increase in December.
However, it is “somewhat premature” to attribute the recent double-digit growth in capital goods to a pick-up in investment activity. It grew 8.4 per cent in December a year ago compared with just 0.6 per cent in December 2016.
“Food inflation benefited from the decline in vegetable prices, which we generally see during winter”. U.S. stock index futures fell more than one percent after the inflation data before paring some of the losses and U.S. Treasury yields rose to session highs. Nevertheless the recovery will be uneven, and the 8.4% IIP reading may not sustain.
This prompted markets to price in as much as a 70% chance of a quarter-point rise in interest rates by May.
“The unchanged CPI print for January continues to validate our view that the downtrend in inflation is likely to be very gradual”, Nikesh Sawjani, an economist at Lloyds Bank’s commercial arm said. Incoming data is also supportive of our hypothesis.
If long-dormant inflation spikes, that means interest rates, which are already on the rise, will go up at an accelerated rate.
The consumer food price index (CFPI) in January stood at 4.58 per cent compared to 4.85 per cent in December 2017.
Still, given the sensitivity investors showed to the wage figure in January’s USA payrolls report, a print above the consensus forecast of 0.2% still carries the potential to set the cat among the pigeons. This article is strictly for informational purposes only. You could lose all of your deposited funds. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns.