After 17-month high, retail inflation softens to 5.07% in January

After 17-month high, retail inflation softens to 5.07% in January

US consumer prices rose more than expected in January, with a measure of underlying inflation posting its biggest gain in a year, strengthening expectations that price pressures will accelerate this year and prompt a faster pace of interest rate increases from the Federal Reserve.

Economists said the stubbornly high inflation in January meant United Kingdom households were faced in the near-term with falling living standards and rising mortgage bills.

Independent economists attributed the high growth in two consecutive months to a low base when industrial output had collapsed due to the impact of demonetisation in late 2016.

The dollar.DXY rallied against a basket of currencies. Higher interest rates make it more expensive for consumers and businesses to borrow and spend and could slow growth.

That would slow economic growth.

Inflation rate for "food and beverages" moderated to 4.58 per cent in January from 4.85 per cent in the previous month, while that for "pan, tobacco and intoxicants" eased to 7.58 per cent in January from 7.73 per cent a month ago.

Saugata Bhattacharya, chief economist at Axis Bank said that " All indicators show that we are out of the woods as a far as manufacturing is concerned.

"Peering through the specifics and looking at the bigger picture, the key issue in our view at present is that fiscal policy is becoming more expansionary at a time when many economies are already at (or close to) full employment". Food inflation, as measured by the Consumer Food Price Index, rose to 4.70 per cent in January from 4.96 per cent in the previous month. December's figures were revised to show little change, after an initially reported gain of 0.4 percent. The measure excluding food and energy is also below the Fed's target.

Digestive enzymes and antacids, which have a 0.22 per cent in IIP, continued to be the top contributors for the IIP growth in December, followed by cement, electricity, diesel and two-wheelers. The year-on-year rise in the so-called core CPI was unchanged at 1.8 percent in January, also because of less favourable base effects.

Ben Brettell, senior analyst at Hargreaves Lansdown, believes that "domestically driven inflation could seamlessly take over from the sterling-related price rises we've seen since the Brexit vote".

FILE PHOTO: A woman shops at an H&M store in New York City, U.S. December 23, 2017.

"But there are signs that the dynamics in the labour market are finally driving some level of domestically generated inflation". Economists polled by Bloomberg had forecast a 1.9% jump.

USA 2-year yields, in the maturity most sensitive to rate hike expectations, advanced to a two-week high of 2.159 percent, compared with 2.106 percent on Tuesday.

Headline consumer price inflation was unchanged at 3% in January.

Capital goods, a barometer of investments, showed a sharp increase in output by 16.4 per cent in December against a decline of 6.2 per cent a year ago.

"After last week's falling share prices, high inflation will put a second dent in the spending power of pensioners whose pots are invested in the stock market". Manufacturing grew a robust 8.4% in the month and so did construction goods at 6.7%.

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