The U.S. released its consumer price index (CPI) figures last evening, reporting that consumer prices – with the headline number up 2.1% and core CPI up 1.8% from a year earlier – rose by more than projected in January thus adding to concerns about an inflation pickup that had rattled financial markets earlier this month. Economists’ expectations were for January to show a 1.9% annual increase in the headline number including food and energy, which is a slight decline from the 2.1% in December, and for core CPI to rise 1.7% compared to 1.8% in December. The CPI rose 0.5% from December, above the median estimate of economists for a 0.3% increase. These figures renewed investor worries that the Federal Reserve will react to signs of rising inflation and hike interest rates at a faster pace than anticipated. Better-than-expected wage numbers announced earlier in February had sent U.S. Treasury yields spiking and sell-offs in the equity markets. Nevertheless, a separate report released after the CPI showed U.S. retail sales unexpectedly fell in January, and December figures that were revised downward, suggesting slower consumer spending for Q1.
Across the Atlantic, U.K. inflation maintained at 3% in January as the cost of attractions such as zoos and gardens countered lower auto fuel and food prices. Consumer prices fell 0.5% from December, similar to statistics from a year earlier, and annual core inflation accelerated to 2.7% from 2.5%. The Bank of England (BOE) expects inflation to subside in 2018 as the effect of the sterling’s 2016 depreciation fades. Markets are pricing in about 3 interest rate hikes over the next 3 years from the BOE, with the first expected as early as May.
In Asia, the People’s Bank of China reported that the country faces “slight rising pressure” on inflation, which warrants the central bank’s close watch. Ongoing efforts to cut excessive industrial capacity and clean up the environment, coupled with resurgent commodity prices, are said to contribute to potential price increases. Although China’s consumer inflation gained steadily throughout 2017, it slowed in January and is expected to gain 2.3% in 2018, still well below the government’s target of 3%, whereas factory-gate inflation is expected to slow to 3.3% in 2018 from 6.3% last year.
Meanwhile in Japan, efforts to revive inflation in order to hit its 2% target continue as the country battles its slowest economic growth in 2 years amidst the strongest yen environment in 15 months.