Published: Sat, January 13, 2018
Markets | By Noel Gibbs

Rising inflation, retail sales pave way for Fed rate hike

Rising inflation, retail sales pave way for Fed rate hike

Excluding food and energy, the core consumer price index (CPI) rose 1.8 per cent from a year earlier after a 1.7 per cent advance, including a 0.3 per cent monthly gain that topped analyst projections and was the most in nearly a year. "However, the subdued performance of electricity generation and the output of Coal India Limited may weigh upon the growth of mining and electricity in December 2017", added Nayar while giving an outlook going forward. Retail inflation breached the central bank's medium-term target for the second straight month in December which could intensify pressure for RBI to raise policy rates in the next few months.

Underlying US consumer prices recorded their largest increase in 11 months in December amid strong gains in the cost of rental accommodation and healthcare, bolstering expectations that inflation will accelerate this year.

The Dollar is down over half a percent against most pairs after the release of inflation data for December. The cost of both hospital and doctor visits increased 0.3%.

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The acceleration in the CPI inflation supported the RBI view. This brought its year-over-year increase to 1.8 percent.

Retail inflation touched 17-month high in December due to strengthening of food and crude oil prices, dashing hopes of interest rate cut in the near future.

For December, energy prices fell 1.2 percent after surging 3.9 percent in November. Growth in the manufacturing component of the index touched 10.2% in November, up from 2.47% in the previous month. Clothing costs have fallen the past four months and have declined 1.6 percent over the past year.

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"The three-month annualized change in the core CPI increased to 2.5 percent in December and is up markedly from the low of this year, zero percent, in May, providing further evidence that the earlier soft patch was only transitory", Mickey Levy of Berenberg Capital Markets said in a research note.

The U.S. central bank is forecasting three rate increases this year, the same number as in 2017. What will hit the common man is that the prices of vegetable have risen by 29 per cent, egg 9 per cent, fruits 6.63 per cent, meat and fish by 4 per cent.

Sales last month included a 1.2 per cent jump in receipts at gardening and building material stores and a 0.2 per cent rise for auto dealerships. The economy grew at a 3.2 percent pace during that period.

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He said the biggest positive was the revision to the November retail data, which suggests that fourth-quarter economic growth may have been stronger than previously thought.

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