Factory production up 7.5% in January, February inflation eases

Bessie Dean
March 14, 2018

As inflation slowly makes its way into the supply chain, retail apparel prices increased 1.5% in February following a 1.7% rise in January, the U.S. Bureau of Labor Statistics reported Tuesday in its Consumer Price Index (CPI).

Consumer prices south of the border rose 0.2% in February, in line with expectations and likely alleviating concerns that inflation is about to accelerate, according to the Labor Department.

NEW DELHI:Backed by better than expected performance by the manufacturing and consumer durables sector, India's factory production grew to 7.5 per cent in January over the same month previous year, while retail inflation cooled to 4.44 per cent in February, well within the comfort zone of the government. For core CPI, we expect some reversal of the strength in January and forecast an increase of 0.1% m/m and 1.7% y/y.

Fuel inflation, calculated by adding petrol, diesel, fuel and light components, eased to 5.9% from 6.4% in January.

The jobless rate is at a 17-year low of 4.1 percent and economists expect it to drop to 3.5 percent by year-end.

US stocks opened higher on Tuesday as investors digested the newly released consumer price data. The price of vegetables has risen by 17.57% in February compared to the corresponding period in 2017 while the price of eggs rose 8.51%, and that of milk and related products increased 3.83%. Also, private sector data showed local passenger vehicle sales grew 7.8 percent in February from a year ago, highlighting steady demand in the economy. From 5.1 percent in January it comes down to 4.4 percent.

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In January, manufacturing grew by a robust 8.7 per cent, followed by 7.6 per cent increase in electricity generation.

Last month, one member of the six-member monetary policy committee voted for a rate hike, another gave up his call for rate cuts while deputy governor in charge of monetary policy, Viral Acharya, also veered more towards the hawkish camp. Even better, these growing throng of employed Americans - which suggests increased consumer spending and by extension, stronger growth - has yet to put pressure on wages and again, by extension, inflation.

JPMorgan said that softening of inflation was nearly entirely underpinned by food prices. Year-over-year Core CPI (ex Food and Energy) came in at 1.85%, up from the previous month's 1.82%.

It was 4.88 per cent in November past year.

The Federal Reserve is expected to raise its benchmark interest rates next week in the first of at least three hikes expected this year - but market watchers are looking for signs the central bank could act more assertively.

"The broader story remains that of USA monetary policy normalization in the backdrop of an improving economy and a further decline in currency market volatility would only fuel more risk taking appetite", said Commerzbank's FX strategist Thu Lan Nguyen.

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