Friday, 18 February 2011

US inflation accelerates

Reuters reports a rise in inflation in the US in January.

Consumer prices, excluding volatile food and energy costs, rose at the quickest pace in 15 months in January, suggesting a long period of slowing inflation had run its course.

The core Consumer Price Index increased 0.2 percent after a 0.1 percent rise in December, the Labor Department said on Thursday. It was the largest increase since October 2009...

Overall consumer prices rose 0.4 percent after increasing by the same margin in December, with food and energy accounting for more than two-thirds of the increase. Economists had expected the headline CPI to rise 0.3 percent last month.

A slow recovery in employment is expected to keep inflation in check.

"The soft jobs market and a broad lack of wage pressures are helping to constrain core inflation. It's unlikely that inflation moves to an uncomfortable level without a much tighter jobs market," said Jim Baird, a partner at Plante Moran Financial Advisors in Kalamazoo, Michigan.

In a separate report, the Labor Department said initial claims for unemployment benefits increased 25,000 to 410,000 last week, partially reversing a hefty drop the prior week.

However, Calculated Risk notes that core inflation in January was at or above the Fed's inflation ceiling and higher than might have been expected considering the output gap.

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.0% annualized rate) in January. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.7% annualized rate) during the month.

... This is just one month, but the annualized rate for these key measures is at or above the Fed's inflation target. With the slack in the system, I have been expecting these core measures to stay below 2% this year.

Meanwhile, other reports on Thursday continue to point to further growth in the economy.

Reuters reports a rise in factory activity in the mid-Atlantic region.

The Philadelphia Federal Reserve Bank said its business activity index rose to 35.9 in February from 19.3 the month before. It was the highest reading since January 2004.

MarketWatch reports a rise in the US leading economic index.

The U.S. economy’s expansion is expected to continue in coming months, though current conditions, while slowly improving, remain weak, the Conference Board said Thursday.

The research organization reported that its leading economic index rose 0.1% in January.

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