NEWS / Foreign Exchange

US: No cooling of CPI yet

US: No cooling of CPI yet

The February CPI was close to expectations. The headline figure rose by 0.4% M/M (consensus 0.3% M/M) slightly faster than consensus, but the more important core CPI was up 0.2% M/M, in line with expectations, and followed a 0.3% M/M upward surprise in January. However, if one takes the results to the third decimal, there was little difference as in February, core CPI amounted to 0.241% M/M and in March 0.256% M/M. On a yearly basis, core CPI stabilized at 2.7%, down from 2.9% Y/Y in September, but up from 2.6% Y/Y in December. In recent months, there was little sign of cooling of core CPI, that amounted to 2.6% annualized in the three month to February. So, while the report didn??™t really disappoint, it wasn??™t a positive surprise either. Looking to some details, food was up sharply (0.8% M/M) for the second month, as cooler weather affected especially citrus fruit. Energy rose by 0.9% M/M. In the core items, tobacco rose by 1% M/M strongly, but more importantly the housing components show some stickiness on the upside. Owner equivalent rents rose by 0.3% M/M and rents by 0.4% M/M. This results in service CPI to run at a high 3.4% Y/Y (3.8% excl. Energy) while commodity CPI slowed to 0.9% Y/Y (effect energy).

Industrial production figures for February were quite a bit stronger-than-expected.

Utility output was a key element, but as it is driven by the weather that doesn??™t tell us much about the economy. However, also manufacturing showed a strong reading and within this sector, it were the durables (cars and computer) that progressed nicely. However, while these figures are a positive surprise, we should wait for more data before jumping to optimistic conclusions. Manufacturing surveys remain weak even if the February ISM did jump back above the 50 threshold. Some details: production rose 1% M/M (3.4% Y/Y), compared to consensus of 0.3% M/M. Also the January figure was revised higher (-0.3% M/M instead of -0.5% M/M). Utility output jumped 6.7% M/M (9.6% Y/Y), manufacturing output increased 0.4% M/M (2.1% Y/Y) and mining progressed 0.1% M/M (3% Y/Y). This pushed capacity utilization up to 82 from 81.4.

Michigan University reported a decline in consumer sentiment that was close to expectations. The headline index dropped to 88.8 in early March (consensus 89) from 91.3 in February and 96.9 in January. Higher gasoline prices, plunging stocks, housing sector woes were the main culprits. Both the current situation and the expectations index contributed to the fall. Households were more pessimistic on their current financial situation, but buying conditions were little changed. Households became more positive vis-a-vis buying houses. Inflation expectations stabilized at 3% (1-year) and 2.9% (5-to-10-year).