Markets now agree with Fed projections for three hikes, though a more aggressive inflation move could trigger additional increases.
Chart 1 shows the inflation rate and our forecast for February 2018.
Consumer food prices rose 3.26 per cent in February, compared with 4.70 per cent in January, as prices of pulses fell more than 17 per cent from a year earlier. The core monthly increase of 0.2% was also in line with market expectations, with the year-over-year rate unchanged at 1.8%. The five-year note, was down 1 basis point to 2.625 percent. We have also noted price increases across some major food items during our food survey in the month. The seasonal trend of rising food prices as the summer approaches, may prevent a further dip in food inflation in the ongoing month. Investors should also keep in mind Industrial Production numbers will come from China early tomorrow, and Germany will release potentially intriguing CPI numbers on Wednesday. Rising stock prices could put some pressure on gold.
However, for the nine-month period of April 2017-January 2018, industrial production grew 4.1 per cent and manufacturing just 4.3 per cent.
Leading domestic credit ratings agency Crisil said while there is an improvement in the growth-inflation mix in numbers released yesterday, it is unlikely to result in any rate cut by the central bank in the next six months.More news: Microsoft women filed 238 complaints about gender discrimination
Next week, the Fed is widely expected to raise short-term interest rates for the sixth time since late 2015, when it started lifting rates from almost zero. 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.
Some investors and economists are forecasting the Fed may raise rates a fourth time if economic growth appears to be accelerating more quickly than Fed policymakers expected.
Prices for women's and girls' apparel increased 1.5% in February, while men's and boys' clothing prices were up 1.7%.
JPMorgan said that softening of inflation was nearly entirely underpinned by food prices. Concerns surrounding USA political and trade tensions were a significant factor in limiting dollar support amid global uncertainty surrounding tariffs and potential retaliation.
Auto prices restrained inflation, as the cost of new vehicles fell 0.5% in February, the most since 2009, while used cars and trucks were down 0.3%, breaking a four-month streak of gains. Over shorter horizons, the core CPI has accelerated. Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2 percent last month after advancing 0.3 percent in January.