Wednesday, 18 May 2011

US industrial production and housing starts weak, UK inflation jumps

US economic data on Tuesday were disappointing. Bloomberg reports:

Industrial production in the U.S. unexpectedly stalled in April and housing starts dropped, posing hurdles to a rebound from the first quarter’s economic slowdown.

Output at factories, mines and utilities was unchanged after a 0.7 percent gain in March, figures from the Federal Reserve showed today, led by a drop in auto production after parts supplies were disrupted by the earthquake and tsunami in Japan. Work began on 523,000 houses at an annual pace, down 11 percent, as tornadoes and floods in the South shut down construction sites.

Also disappointing was an unexpected acceleration in UK inflation in April. Reuters reports:

Annual inflation hit a 2-1/2 year high last month and core prices rose at a record pace, but central bank governor Mervyn King warned that reacting too quickly to rising prices could harm the economy.

Consumer prices rose a bigger-than-expected 4.5 percent year-on-year, the fastest pace of increase since October 2008, propelled by soaring travel costs around Easter and higher duty on alcohol and tobacco.

The Bank of England has so far reacted minimally to the high UK inflation figures and is likely to continue to do so.

"The MPC (monetary policy committee) judges that attempting to bring inflation to the target quickly risks generating undesirable volatility in output," King wrote, saying the overshoot was largely due to a rise in VAT sales tax in January and higher energy and import prices.

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