WRAPUP 5-US consumer prices turn higher, economy gains steam

Thu Mar 17, 2011 3:44pm EDT

Related Topics

 * CPI rise fastest in 1-1/2 years, core CPI muted
 * Weekly jobless claims fall, 4-week avg at 2-1/2-year low
 * Industrial output slips on utilities; manufacturing up
 * Factory activity in Mid-Atlantic at 27-year high
 (Updates markets to late afternoon)
 By Lucia Mutikani
 WASHINGTON, March 17 (Reuters) - U.S. consumer prices
increased at their fastest pace in more than 1-1/2 years in
February as fresh data showed growth was accelerating, but
underlying inflation pressures remained generally contained.
 Some economists expressed concern that the deepening crisis
in Japan could hurt U.S. growth in the weeks and months ahead
but they cautioned it was too soon to know for sure.
 Positive signs for the U.S. economy from data on Thursday
included claims for new unemployment benefits, which fell last
week, and factory activity in the country's Mid-Atlantic
region, which expanded at its quickest rate in 27 years.
 Economists said the reports were an encouraging sign for
Federal Reserve officials whose massive efforts to stimulate
growth through government bond purchases were aimed both at
boosting the labor market and preventing prices from falling.
 "There are signs here the pace of growth has picked up and
if the Fed was worried about inflation being too slow, they can
forget about it," said Stuart Hoffman, chief economist at PNC
Financial Services in Pittsburgh. "The Fed needs to worry about
inflation expectations because they are much more fickle."
 The Fed, which wants to ensure an inflationary psychology
does not take root, said on Tuesday it was watching inflation
and expectations for future prices closely, but that the upward
price pressure from commodities should be temporary.
 While the U.S. central bank see inflation expectations as
anchored, consumers feeling the pinch of high energy and food
costs think inflation will likely worsen.
  INSTANT VIEW: [ID:nN17135403]
  BREAKINGVIEWS-Fed policy disconnecting from looming
inflation [ID:nN17189714]
  Graphic - US inflation    r.reuters.com/hux58r
  Graphic - US jobless claims  r.reuters.com/gux58r
  Graphic - US industrial ouput r.reuters.com/wyx58r
 Large gains in food and energy costs have propelled
inflation sharply higher over the past three months. In
February, the Consumer Price Index rose 0.5 percent, the
largest increase since June 2009, the Labor Department said.
 Energy prices last month rose 3.4 percent after increasing
2.1 percent in January, while food prices increased 0.6
percent, the largest gain since September 2008.
 Other prices, however, have been largely muted and the core
CPI -- excluding food and energy -- rose just 0.2 percent,
suggesting surging commodity costs had yet to generate a broad
inflation that would spur the Fed into action.
 Instead, analysts say the jump in food and energy prices is
likely to undercut other spending and restrain the recovery,
encouraging the Fed to keep its economic support in place.
 "The Fed has a green light to continue ... in view of the
short-term downside risks to the outlook for growth related to
the recent spike in gasoline prices, and the massive
disruptions to production in the Japanese economy," said Brian
Bethune, chief U.S. financial economist at IHS Global Insight
in Lexington, Massachusetts.
 For now, the economy appears to be weathering the high
energy costs, although analysts remain wary of the effects of
Japan's devastating earthquake and tsunami.
 Initial claims for state unemployment benefits fell 16,000
to 385,000 last week, the U.S. Labor Department said in another
report, with the four-week moving average hitting its lowest
since mid-July 2008.
 The data covered the survey period for the government's
closely tracked employment report for March.
 "This supports a good print on March payrolls," said Ellen
Beeson Zentner, a senior U.S. economist at the Bank of
Tokyo-Mitsubishi UFJ in New York.
 But she offered a word of warning: "If supply disruptions
and stock market volatility persist we could see businesses put
hiring on hold and April job growth could slow."
 Companies appear to be taking the high energy prices and
the devastation in Japan in stride. FedEx Corp (FDX.N), the
world's largest cargo airline, forecast improved revenue and
margins in the current quarter and beyond. It also said it saw
more shipments for reconstruction in Japan. For more see
 The outlook from FedEx helped U.S. stocks bounce back from
three days of selling, pulling the Standard & Poor's 500 index
.SPX back into positive territory for the year.
 Prices for U.S. government debt US10YT=RR fell as
investors skimmed profits off a safe-haven rally this week. The
dollar eased off record lows against the yen JPY= amid fears
Japanese authorities might intervene to curb the currency's
rapid ascent.
 In another sign the economy was strengthening, the
Philadelphia Federal Reserve Bank's business conditions index
rose to 43.4 in March -- the highest since January 1984 -- from
35.9 in February. [ID:nEAP105H00]
 A separate report from the Fed showed industrial output
slipped 0.1 percent in February, pulled down by a 4.5 percent
plunge in utility production. Manufacturing output, however,
rose 0.4 percent, showing the sector was still helping to drive
the economy's recovery. [ID:nN17151274]
 (Additional reporting by Glenn Somerville and Pedro Nicolaci
da Costa; Editing by James Dalgleish)