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U.S. consumer inflation firming; new home sales at seven-year high
March 24, 2015 / 12:33 PM / 3 years ago

U.S. consumer inflation firming; new home sales at seven-year high

WASHINGTON (Reuters) - U.S. consumer prices rebounded in February as gasoline prices rose for the first time since June, and there were also signs of an uptick in underlying inflation pressures, keeping the Federal Reserve on course to raise interest rates this year.

The economy, which has been on the back foot in recent months, received another boost from other data on Tuesday showing new home sales surged to a seven-year high in February and manufacturing activity gained some momentum in March.

The upbeat reports came despite harsh weather and a strong dollar, which have contributed to slowing economic activity early in the first quarter.

“It doesn’t corroborate the further disinflation story. There is some chance economic activity is going to pick up a little bit this spring, but it’s not really clear how much and that matters for the timing of the first rate hike,” said Guy Berger, an economist at RBS in Stamford, Connecticut.

The Labor Department said its Consumer Price Index increased 0.2 percent last month after dropping 0.7 percent in January, ending three straight months of declines in the index.

In the 12 months through February, the CPI was unchanged after slipping 0.1 percent in January, as the impact of an earlier plunge in global crude oil prices lingers.

Fed officials have long viewed the energy-driven weakness in prices as transitory and economists said February’s firmer readings were in line with policymakers’ projections that inflation will move back to the central bank’s 2 percent target.

The dollar rose against a basket of currencies, while U.S. stocks edged down. Prices for U.S. Treasury debt were higher.

While a June move remains on the cards, many economists are leaning towards a September tightening, arguing that the effects of a strong dollar and weak energy prices would continue to influence inflation data through the first half of the year.

Fed Chair Janet Yellen said last week policymakers could raise interest rates when they had “seen further improvement in the labor market” and were “reasonably confident that inflation will move back to its 2 percent objective over the medium term.”

DOWNWARD PRESSURE

A customer shops at a Walmart Supercenter in Rogers, Arkansas June 6, 2013. REUTERS/Rick Wilking

“In the near-term, the stronger dollar will continue to put downward pressure on imported goods prices,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

“As the dampening effect from the stronger dollar fades in the second half of this year, we would expect to see core inflation gradually strengthen.”

The so-called core CPI, which strips out food and energy costs, increased 0.2 percent in February after a similar gain in January. In the 12 months through February, the core CPI rose 1.7 percent, the largest increase since November.

For now, the signs of inflation are welcome for an economy that has stumbled in recent months under the weight of a harsh winter, weak global demand, the strong dollar and the now-settled labor dispute at one of the country’s busiest ports.

In a separate report, the Commerce Department said new home sales jumped 7.8 percent to a seasonally adjusted annual rate of 539,000 units last month, the highest level since February 2008.

Manufacturing, which has been hurt by supply chain disruptions because of the ports labor strife, showed some strength this month.

Financial information services firm Markit said its U.S. Manufacturing Purchasing Managers’ Index rose to a five-month high of 55.3 in March from a reading of 55.1 in February.

Crude oil prices fell 60 percent between June and January on fears of a global oil glut and the refusal of Saudi Arabia and other OPEC members to cut output. In February, Brent LCOc1 stabilized at around $60 and U.S. crude at around $50.

Last month, domestic gasoline prices rose 2.4 percent, the largest increase since December 2013, after tumbling 18.7 percent in January. Food prices increased 0.2 percent.

Elsewhere, shelter costs increased 0.2 percent, accounting for about two-thirds of the increase in the core CPI.

There were gains in the prices of apparel, airfares, new motor vehicle and used cars and trucks prices. However, the cost of medical care services declined for the first time since 1975.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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