Inflation moderates in US and UK, Fed concerned about housing

Reuters reports Ben Bernanke's speech to Congress yesterday.

Federal Reserve Chairman Ben Bernanke told Congress on Wednesday housing market woes could dampen an expected pickup in U.S. economic growth, but he restated that the central bank's main worry is inflation.

"Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend," he told the House of Representatives Financial Services Committee...

As a result of weaker-than-expected home building, the Fed cut its forecast for growth this year by a quarter-percentage point to a range of 2.25 percent to 2.5 percent, and downgraded its 2008 projection as well.

Based on the data from the US yesterday, concerns over the housing market appear justified, but inflation remained relatively subdued in June. MarketWatch reports:

The Commerce Department reported that starts of new homes rose by 2.3%, to a seasonally adjusted annual rate of 1.467 million in June, the quickest pace since April.

Year on year, however, starts continue to be weak. June's housing starts were 19.4% below where they were at the same time last year...

Meanwhile, building permits sank by 7.5% in June, according to the government report, to a pace of 1.406 million annualized. Permits for single-family homes fell by 4.1% from May...

Separately, the Labor Department reported that U.S. consumer prices increased a moderate 0.2% in June, with falling energy prices offsetting rising food prices. It's the smallest increase in the seasonally adjusted consumer price index since January.

Indeed, the macroblog notes that "developments on the inflation front appear to be improving".

Consumer price inflation also moderated in the UK in June to a 2.4-percent rate last month from 2.5 percent in May. Meanwhile, average earnings rose at their weakest pace in 1-1/2 years in the three months to May despite a tightening labour market.

Yesterday also saw Japan's index of leading economic indicators revised to 40.9 in May from an initial estimate of 30.0.