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Consumer Inflation Declines

December 14, 2012 by Leave a Comment

Consumer prices in the United States fell in November for the first time in six months, pointing to muted inflation pressures that should allow the Federal Reserve to stay on its ultra-easy monetary policy path as it tries to nurse the economy back to health.

The Labor Department said on Friday its Consumer Price Index dropped 0.3 percent last month as a sharp decline in gasoline prices offset increases in other areas. It was the largest drop since May and followed a 0.1 percent gain in October.

Economists polled by Reuters had expected consumer prices to fall 0.2 percent.

The so-called core C.P.I., which excludes food and energy prices, edged up 0.1 percent after rising 0.2 percent in October. Although food prices rose 0.2 percent in a lagged response to the summer drought, price pressures remain tame.

“The inflation data continues to be benign and there is very little in the way of price pressures in the economy,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. “That therefore justifies the Federal Reserve’s action to keep a very accommodative monetary policy.”

The Fed said on Wednesday it expected to hold interest rates near zero until unemployment falls to at least 6.5 percent and as long as inflation does not threaten to break above 2.5 percent.

The central bank also replaced an expiring stimulus program with a fresh round of Treasury debt purchases, to help speed up economic growth in the near term. The slack labor market is a major factor in dampening inflation pressures.

In the 12 months that ended in November, overall consumer prices increased 1.8 percent, the smallest increase since August. That compared to October’s 2.2 percent rise.

The Labor Department said inflation-adjusted average weekly earnings rose 0.5 percent last month, reversing October’s 0.5 percent fall.

Last month, gasoline prices tumbled 7.4 percent, the largest drop since December 2008, after falling 0.6 percent In October. That offset a 0.2 percent gain in food prices.

Away from gasoline and food, the cost of apparel fell 0.6 percent after increasing 0.7 percent in October. New motor vehicle prices rose 0.2 percent after slipping 0.1 percent the prior month.

Housing costs edged up, with owners’ equivalent rent rising 0.2 percent after climbing by a similar margin in October. Rents have been advancing in recent months, largely driven by a decline in homeownership.

In the 12 months ended in November, core C.P.I. increased 1.9 percent after rising 2.0 percent in October.

Article source: http://www.nytimes.com/2012/12/15/business/economy/consumer-inflation-declines.html?partner=rss&emc=rss

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China October Inflation Eases

November 9, 2011 by Leave a Comment

Inflation fell from 6.1 percent in September and marked the third straight decline since a peak of 6.5 percent in July, bolstering expectations that price pressures were on a solid downtrend.

Premier Wen Jiabao said prices had fallen further since October, adding to the view that policymakers will edge toward more pro-growth policies, although inflation is still too high to expect a cut in interest rates.

“As inflation worries ease, the room for fine-tuning monetary tightening is getting bigger,” said Ting Lu, an economist at Bank of America/Merrill Lynch in Hong Kong.

“Policymakers might still put taming inflation as a top priority, but we will see policies to be increasingly nudged toward pro-growth.

“That said, we don’t expect a major change in monetary policy stance or some high profile moves such as cuts of policy rates and RRR (required reserve ratios).”

The inflation figures soothed investors concerns about a sharp slowdown in China, supporting oil prices and underpinning Chinese shares, although market direction is being largely set by events in Europe.

The 5.5 percent rise in the consumer price index in the year to September was bang in line with expectations from a Reuters poll.

Producer price inflation also showed a marked slowdown to 5.0 percent in October, a one-year low, from 6.5 percent in September. The median of a Reuters poll had forecast an October reading of 5.7 percent.

Economist Lu said the combination of figures suggested his forecast that consumer inflation would drop to 4.6 percent in December may now be too high.

Indeed, Wen suggested prices had continued to fall.

“Since October, overall domestic prices have been falling noticeably,” Wen was quoted as saying by a government website. “Prices of pork and eggs have fallen, but prices of fruit, dairy products, beef and mutton remain at high levels,” he said.

China’s leaders have begun talking in recent weeks about “fine tuning” macroeconomic policy to maintain economic growth, which slowed in the third quarter to 9.1 percent, its weakest in more than two years.

But they have also made it clear that stabilizing prices and fighting inflation remain the top priority, so analysts rule out a rate cut or reduction in bank reserve ratios anytime soon.

Most evidence of the fine-tuning has so far been seen through tweaks to tax policy aimed at small and medium-sized businesses and some signs that bank lending to that sector of the economy — which supports 75 percent of China’s jobs — could be relaxed.

“The best way of controlling price rises is to boost production,” said Wen.

The premier also said Beijing would not loosen policies to rein in the red-hot property market, a report on the official Xinhua news agency said.

Wen said the construction of government-subsidized housing projects would help relieve some supply strains and ease housing inflation.

The latest data showed that food prices, a major source of inflationary pressure in China, rose 11.9 percent in October from a year earlier, the smallest annual increase since May.

But they fell 0.2 percent from September, the first decline since May.

“This indicates inflation pressure is indeed slowing,” said Zhang Zhiwei, an economist at Nomura in Hong Kong, who said consumer inflation may drop below 5 percent in November.

“Lower inflationary pressure leaves room for further policy fine tuning. The PBOC has already marginally loosened liquidity by open market operations in October.

“We expect this type of fine-tuning to continue, but RRR and interest rates will be kept unchanged for the rest of 2011.”

RISK OF IMMINENT EASING

While most analysts rule out an immediate cut in interest rates, there is more debate on when the central bank might reduce bank reserve ratios. At 21.5 percent, the RRR is at a record level for big banks.

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May Consumer Inflation Rose at a Slower Rate

June 16, 2011 by Leave a Comment

Taken together, the reports reflect the impact of some of the global events that took place in recent months.

“Both of them are reflective of the slowdown in the economy that we have experienced over the last few months,” said Russell Price, a senior economist with Ameriprise Financial.

The Labor Department said in its monthly report that the Consumer Price Index, the most widely used gauge of inflation, was up 0.2 percent in May, compared with 0.4 percent in April, and up 3.6 percent from a year ago before seasonal adjustment.

The monthly rise in the C.P.I. was the lowest since November, when the index was up 0.1 percent, the department’s Bureau of Labor Statistics said.

Analysts had forecast smaller increases: a monthly rise of 0.1 percent in May and a 3.4 percent rise for the 12-month period.

The overall C.P.I. reflected rising food prices, with the food index up 0.4 percent, the same as the previous month. The energy index fell by 1 percent in May, including a 2.0 percent decrease in the gasoline component, making it the first time gasoline has declined since June 2010.

Paul Ballew, a former Federal Reserve economist and now the chief economist at Nationwide, said the C.P.I. data was “not great news” but also “not devastating.” While there are no job or income gains to result from such a modest rise, there is still enough inflation to affect consumers’ pocketbooks, and businesses are faced with costs pressures but no revenue increases, he noted.

“It is not that inflation is roaring ahead, but there are enough price pressures to put a squeeze on consumers and businesses,” he said.

When the traditionally volatile prices for energy and food are stripped out, the core C.P.I. in May recorded its largest increase since July 2008. It was up 0.3 percent in May, compared with 0.2 percent in April, and reached 1.5 percent in the 12-month period, the department said. The monthly indexes for May were above analysts’ forecasts of 0.2 percent and 1.4 percent for the year.

Prices for clothes, shelter and new vehicles contributed to the price acceleration last month, the department said, while there were declines in airline fares, tobacco and personal care items.

In another report released on Wednesday, manufacturers in the New York region reflected less optimism about business conditions. The Empire State Manufacturing Survey, released by the Federal Reserve Bank of New York, indicated that conditions for manufacturers deteriorated in June, as measured by the survey’s general business conditions index, which fell 20 points to minus 7.8 points, dipping below zero for the first time since November 2010.

Mr. Ballew, the former Fed economist, said that the C.P.I. and Fed reports add up to a “flat spot” as the economy recovers.

“We have a fragile economy,” he said. “It is a reflection that we have a long way to go to correct the imbalances that we are all dealing with.”

Analysts had expected a decline in the Empire State index but forecast that it would remain above zero, at 14 points.

In addition, the survey’s future general business index fell compared with its level in May, suggesting that optimism about the next six months has deteriorated. It was down 30 points, to 22.5, its lowest level since early 2009, the survey said.

The new-orders and shipments indexes posted steep declines and fell below zero, the report said. The indexes for number of employees, prices paid and prices received were also lower.

Mr. Price noted that automobile production in the United States declined in April after the March earthquake and tsunami in Japan, contributing to a moderation in business activity. Demand has softened because of the recent spike in gasoline prices.

A third report from the Federal Reserve showed that industrial production rose 0.1 percent in May, after no growth in April because of the Mississippi River flooding and the effects on business related to Japan, analysts said. The report showed a 0.4 percent increase in manufacturing production in May that was mostly offset by a 3.3 percent decline in electric utility production. 

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