Inflation data likely to keep Fed on hold

Fed officials have been saying for some time that they remain wary of inflation. Yesterday's data show why. From MarketWatch:

Keeping the pressure on the Federal Reserve, U.S. consumer prices increased 0.4% last month, led by higher prices for food, energy, shelter and tobacco, the Labor Department reported Friday.

Core prices, excluding food and energy, increased 0.2% in February...

In the past year, consumer prices are up 2.4%, while core prices are up 2.7%, unchanged from last month's 12-month increase. Core prices have risen at an annual rate of 2.6% in the past three months, well above Fed policymakers' implied target zone of about 2.25% for the core CPI.

Adding to indications that the Fed will be hesitant about cutting rates, industrial production was strong in February. MarketWatch reports:

U.S. industrial output rebounded in February, led by higher utility output because of colder-than-average temperatures.

Industrial output rose 1.0% last month, marking the biggest gain since November 2005. Capacity utilization rose to 82.0%, the highest level since September, the Federal Reserve reported Friday...

Industrial production is up 2.3% in the past 12 months...

Manufacturing output increased 0.4%...

But consumer sentiment fell in March. Reuters reports:

U.S. consumer sentiment slipped to its lowest in six months in March, as worries about declining stock prices and the health of the housing market shook consumer's confidence in the economy, a report showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said its preliminary March reading on the consumer sentiment index slipped to 88.8, down from 91.3 in the previous month.

If the Fed keeps interest rates on hold, don't expect relief from central banks elsewhere either.

In Japan, the outlook for the economy is positive. From Bloomberg:

The tertiary index, a gauge of money spent on consumer and business services, advanced a seasonally adjusted 1.6 percent to 110.7 from December, the first increase in three months, the trade ministry said today in Tokyo. The median estimate in a Bloomberg News survey of 34 economists was 1.1 percent.

Meanwhile, AFP/CNA reports a warning from Chinese Premier Wen Jiabao:

"Now we have an excessively high investment ratio and we have excessively large extension of credit and excessive liquidity in the market," Wen told a press briefing at the end of parliament's annual full session.

He said China's current economic growth relied too heavily on investment. "This is not sustainable," he said.

Shortly before Wen spoke, China announced investment in urban infrastructure rose 23.4 per cent in the first two months of the year from the same period in 2006, when the rise was 26.6 per cent.