US Consumer Prices Rose 0.2% in February, Up 2.2% On Year

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Fed policymakers expect that wage pressures will rise as unemployment falls, leading companies to pass on some of their higher wage bills in the form of price increases. Over the last 12 months, the all-items index rose 2.2%.

Growth in the Index of Industrial Production quickened to 7.5% in January from 7.07% in December.

Consumer food prices rose 3.26 percent in February, compared with 4.70 percent in January, as prices of pulses fell more than 17 percent from a year earlier. Food prices rose 0.2 percent in January.

The CPI report came on the heels of data last Friday showing a deceleration in wage growth in February as well as a downward revision to January's increase in average hourly earnings. We expect core inflation to ease further in February, given improvement in FX liquidity; external reserves grew by 4.44% month-on-month, from USD40.69bn to USD42.49bn. Further, seasonal increase in food prices will impact inflation from April too. The index for all items less food and energy rose 1.8 percent over the past year, while the energy index increased 7.7 percent and the food index advanced 1.4 percent.

The IIP growth in January this year was mainly on account of an uptick in the manufacturing sector which constitutes 77.63 per cent of the index.

Apparel prices continued to march higher, rising 1.5 percent in February after surging 1.7 percent in January. IIP grew at 4.1 per cent in April-January this fiscal compared with 5 per cent in the same period of the previous financial year. Economists expected a 2.3% increase in overall inflation and core prices to rise 1.9%.

Amongst use-based industries, sectors including capital goods (14.6 per cent), consumer durables (8 per cent) and non-durables (10.5 per cent) showed healthy expansion in January, in an indication that both investments by companies and retail demand are coming back on track. Moreover, core inflation is sticky at around 5 percent, while an imposition of more tariffs on some imports like mobile phones is likely to boost price pressures, giving the RBI more ammunition to wait and watch.

Data released by the Ministry of Statistics and Programme Implementation suggested that India's retail inflation had eased to 4.44 percent in February, from January's 5.07 percent.

The mining sector, however, was a laggard at 0.1% growth compared to 8.6% a year ago.

On the other hand, the industry group "Manufacture of tobacco products" has shown the highest negative growth of (-) 46.5 percent followed by (-) 32.4 percent in "Other manufacturing" and (-) 13.2 percent in "Printing and reproduction of recorded media". It was much lower at 2.01 per cent in February 2017.