Inflation Rate at Acceptable Fed Levels in February

Andrew Cummings
March 14, 2019

The broader consumer price index (CPI) rose 0.2 per cent from January, the first increase in four months, though the 1.5 per cent annual gain missed projections and was the smallest rise since 2016. The Reserve Bank of India (RBI) factors in retail inflation while deciding at its monetary policy.

USA consumer prices rose for the first time in four months in February, but the pace of the increase was modest, resulting in the smallest annual gain in almost 2½ years.

Consumer inflation in January was re-examined downwards to 1.97 per cent from 2.05 per cent, as per an official statement. After a minus 2.33 per cent slump in January, it has now recovered to -0.66 per cent.

Gasoline prices surged 1.5 percent in February, but they're 9.1 percent lower from previous year.

Price pressures in the core (excluding food and energy) were a little softer than expected, up only 0.1% in February. "Higher energy prices will push up overall inflation, and rising wages will lead businesses to raise prices in an effort to maintain profit margins".

The January PCE price data will be released on March 19.

Prescription-drug prices fell 1 per cent on a monthly basis, the most on record, bringing the annual decline to 1.2 per cent - the largest drop since 1972. That index tends to run slightly below the Labor Department's CPI, and January figures are due March 29.

"The February CPI results appear to corroborate the recent dovish sentiment toward the inflation outlook expressed by a number of policy makers". The central bank also changed its policy stance to "neutral" from "calibrated tightening". School tuition and child care costs have increased 3 percent over the past 12 months.

USA 30-year bond yields were slightly down at 3.031 percent, from 3.032 percent on Monday.

A New York Fed survey of consumer expectations published on Monday showed a drop in inflation expectations in February.

Prices of fruits (-4.62 per cent) and vegetables (- 7.69 per cent) continued to decline in February. This marks the strongest inflation-adjusted wage growth since November 2015, an increase that would likely help consumer spending and economic growth. Clothing prices plunged 1 percent in February, while new-auto prices slipped 0.2 percent. That followed a 1.1 per cent jump in January.

But consumers got some relief from healthcare costs, which fell 0.2 percent after five straight monthly increases.

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