Published: Sat, January 13, 2018
Finance | By Cynthia Curry

CPI Inflation at 5.21%, hits 17 months high in December 2017

CPI Inflation at 5.21%, hits 17 months high in December 2017

Healthy retail sales in 2017 are another sign of the growing strength of the USA economy, but inflation was slower than expected, according to the latest government data released Friday.

Fed fund futures are pricing in ajn 87% chance of a rate hike at the March Federal Open Market Committee meeting. In the same month past year, growth was 1.5 percent.

Needless to say-except that I guess I need to say it-what really matters is the inflation rate compared to the previous year, not the previous month.

"The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth", an RBI statement said.

Core inflation rose to 5 percent year-on-year in December from 4.82 percent in November because of a less than expected drop in housing inflation. Weak import and producer price data this week had raised concerns about the inflation outlook, although the two reports do not have a strong correlation with the CPI.

The Consumer Price Index CPI measures the cha nge in prices paid by consumers for goods and services.

The dollar briefly trimmed losses against a basket of currencies after the CPI data, but later slumped to a four-month low on expectations that the European Central Bank would wind down its bond buying program this year.

US government-bond prices edged lower Friday, pushing the yield on the two-year note above 2%, after inflation data beat expectations. Stocks on Wall street were trading higher. The consensus is for 0.5%, while it was 0.8% in November.

Food costs edged up 0.2 percent in December and are up a modest 1.6 percent over the past year. The cost of both hospital and doctor visits increased 0.3 percent.

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The decisive number in the inflation report is shelter, which makes up 34% of the total Consumer Price Index and more than 40% of the core index net of food and energy. The government figures show that gas prices are up 6.9 percent from December 2016. "As a result, we still expect inflation will move up and stabilize around 2% over the next couple of years".

Annual retail food inflation rose 4.96 percent in December from 4.35 percent in the previous month.

Its Producer Price Index gave up 0.1% in December from November. Retail sales increased 5.4 percent from a year earlier.

"The outsized core is due to a 1.4% jump in used auto prices - demand rocketed after the hurricanes in the summer, driving up auction prices", said Ian Shepherdson at Pantheon Macroeconomics. Clothing costs have fallen the past four months are down 1.6 percent over the past year.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

The Nasdaq Composite .IXIC was up 42.49 points, or 0.59 percent, at 7,254.26.

"My base case is still that we should increase rates three times this year", he said.

Meanwhile, manufacturing sector grew by 10.2 per cent in November as compared to 4 per cent a year ago.

Average weekly earnings rose by 0.7% following a 0.8% increase in November.

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