United States inflation jumps, boosting likelihood of rate hike

Manufacturing lifts India's November factory output by 8

The U.S. bond market's gauges of inflation expectations rose on Friday as a stronger-than-forecast increase in core domestic consumer prices in December kindled bets that inflation would reach the Federal Reserve's 2 percent goal. Shelter costs rose 0.4 percent, the most since August, including a 0.4 percent increase in rents and 0.3 percent in owners' equivalent rent, one of the categories created to track rental prices.

Food costs edged up 0.2 percent in December and have increased a modest 1.6 percent over the past year.

Indian consumer price inflation continued with its upward trend in December.

"It supports our view that the Fed will ultimately increase interest rates by a more aggressive 100 basis points cumulatively this year", said Paul Ashworth, chief USA economist at Capital Economics in Toronto.

The Fed's 2% annual inflation target is based on officials' preferred price measure, the Commerce Department's personal-consumption expenditures price index.

The dollar trimmed losses against a basket of currencies after the data. The yield on the benchmark 10-year U.S. Treasury note closed above 2.5% earlier this week for the first time since March, and it moved higher Friday morning after the inflation and spending data were released. U.S. stock index futures pared gains.

Households also paid more for new motor vehicles, which rose 0.6 per cent in price last month, the biggest gain since January. Owners' equivalent rent of primary residence climbed 0.3 percent after gaining 0.2 percent in November. A rise in prices of select food items supported the high CPI print. The cost of both hospital and doctor visits increased 0.3 per cent. Consumer durables output grew 2.5 per cent in November, sharply down from 6.8 per cent previous year. Apparel prices, however, fell 0.5 percent.


Whilst more recent comments from New York Fed President Dudley have been hawkish, after he said, "The Fed may have to press harder on the brakes over the next two years", the Dollar has continued falling as actual data in the form of Producer Prices, otherwise known as PPIs or "factory gate" prices out yesterday, fell below estimates in December.

The 2-year rate, sensitive to changes in monetary policy, popped higher to 2.014%, from 1.972% late Thursday, according to Tradeweb.

But clothing prices fell for the fourth consecutive month, and airline fares fell 0.5% after a 2.4% drop in November.

The spike in food prices pushed retail inflation to a 17-month high of 5.21 per cent, inching towards the RBI's upper tolerance level of 6 per cent.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3 per cent last month after an upwardly revised 1.4 per cent surge in November. Sales at auto dealerships rose 0.2 per cent.

US producer prices fell for the first time in almost 1-1/2 years in December amid declining costs for services, which could temper expectations that inflation will accelerate in 2018.

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