Rising inflation, retail sales pave way for Fed rate hike

Rising inflation, retail sales pave way for Fed rate hike

The reports likely keep the Federal Reserve on course to raise interest rates at least three times this year. Fed policymakers have pencilled in three rate hikes in 2018 following three a year ago.

According to the data furnished by the Ministry of Statistics and Programme Implementation, December's consumer price index (CPI) inflation rose to 5.21 per cent from 4.88 per cent in November.

A separate Commerce Department report on Friday showed US retail sales rose in December and November's gain was revised upward, indicating a robust holiday-shopping season.

On a year-on-year basis, the manufacturing sector expanded by 10.2 percent, whereas mining's output inched-up by 1.1 percent and the sub-index of electricity generation increased by 3.9 percent.

But economists say details of the data from December show some hints that inflation may finally be on the rise.

Allowances made earlier for government employees "will continue to exert pressure on consumer inflation, which will remain at an elevated level for the rest of the (current fiscal) year", said Madan Sabnavis, chief economist at CARE Ratings.

Food prices rose by only 0.1% in December.

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The dollar fell to a session low against a basket of currencies after the data. US stock index futures pared gains. In the same period of 2016, the rate was 3.41 percent. It increased borrowing costs three times in 2017.

Retail sales rose 0.4% in Decembe (http://www.marketwatch.com/story/holiday-retail-sales-a-case-of-haves-havenots-2018-01-12) r on a brisk holiday shopping season, but slightly below the MarketWatch forecast of 0.5%.

Meanwhile, used auto and truck prices jumped 1.4% in the month, while new vehicle prices gained 0.6%. "The uptick in the CPI inflation to a 17-month high in December 2017 validates the caution displayed by the Monetary Policy Committee (MPC) in its recent reviews", said Aditi Nayar, principal economist of Icra.

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

"The data is consistent with the view of the Fed on inflation, which is that weakness in growth before was due to transitory factors", said Lewis Alexander, chief economist at Nomura Securities International Inc.in NY, who had projected a 0.3 percent monthly gain in core prices. The government figures show that gas prices have risen 6.9 percent from December 2016.

Capital goods output, which is a barometer of investment, grew by 9.4 per cent in November as against 5.3 per cent a year ago.

Sales last month were supported by a 1.2 percent jump in receipts at gardening and building material stores. The so-called core PPI increased 0.4 percent in November.

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