Why Consumer Inflation May Now Be in the Sweet Spot

Comex Gold

Daily April Comex Gold

However, at its December 2012 FOMC meeting, the inflation ceiling was raised to 2.5%, while its accommodative measures (low Fed Funds Rate and quantitative easing) were in place. A stronger than expected inflation report could be the catalyst that drives prices out of the current trading range. Over the last 12 months, the all-items index rose 2.2%.

Monthly core inflation, which strips out volatile food and energy costs, rose 0.2%, following a 0.3% increase in January.

However, the index for food remained unchanged due to index for food at home compensated the increase in the food away from home index. The rise in prices was lower than the prior month, when the CPI rose 0.5 percent. However, the rate of price increase was higher for transport and communication services at 2.39 per cent (1.97 per cent January).

The U.S. NFIB small-business confidence index strengthened to a record high of 107.6 for February from 106.9 in the previous month. The NFIB survey also showed almost a third of owners reported raising compensation to retain or attract workers last month, the largest share in more than 17 years.

Last month's increase in consumer prices was in line with economists' expectations. Moreover, core inflation is sticky at around 5%, while an imposition of more tariffs on some imports like mobile phones is likely to boost price pressures, and may prompt RBI to wait and watch.

The Federal Reserve had targeted 2.0% to 2.5% inflation for years, and now 2.0% inflation is most frequently cited as the long-term goal.

The Labor Department says the consumer price index increased 0.2 per cent last month, after a sharp 0.5 per cent gain in January. 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.

The overall CPI increased 0.2% in February on a seasonally adjusted basis, after rising 0.5% in January and was up 2.2% from a year earlier. Strong IIP growth of 7.5 percent in January; capital goods grow by 14.6 percent; manufacturing at 8.7 percent; infrastructure/construction goods at 6.8 percent.

A survey of small businesses published on Tuesday showed the share of owners reporting higher selling prices in February hit its highest level since July 2014.

Chandrajit Banerjee, director general, CII said: "The visible improvement in industrial output, which rose to 7.5 per cent at the onset of the New Year as against 3.5 per cent last year, augurs well for the return of broad based recovery in industrial performance during the year. Looking ahead, we expect that industrial performance would be on a clear up slope with both consumption and investment picking up pace during the year".

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