Consumer Price Index: February Headline At 2.2%

Lula Sharp
March 14, 2018

The consumer price index rose 0.2 percent from a month earlier, hitting the consensus forecast.

USA headline CPI slowed at the margin - rising by 0.2% in the month of February from 0.5% in the previous - resulting in a slight increase in the year-on-year rate to 2.2% from 2.1%.

Strong inflation numbers in January had sparked fears that price pressures were accelerating, leading financial markets to expect a more aggressive pace of interest rate increases from the Federal Reserve than is now anticipated.

Core consumer prices, which exclude food and energy prices, also edged up by 0.2 percent in February following a 0.3 percent increase in January.

"Tame core goods prices continue to keep inflation at bay, a reflection of the remaining global economic slack offsetting a tightening United States economy", he said. In February 2017, CPI inflation was at 3.65%.

In January, retail inflation had declined to 5.07% while the inflation based on wholesale prices had eased to a six-month low of 2.84%.

Chart 1 shows the inflation rate and our forecast for February 2018. Last month┬┤s increase in consumer prices was in line with economists┬┤ expectations.

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The CPI inflation for rural areas was 4.37% in February while for urban areas it was 4.52%. Further, seasonal increase in food prices will impact inflation from April too. A weakening dollar and fiscal stimulus in the form of a $1.5 trillion tax cut package and increased government spending are also seen spurring inflation. Economists polled by Bloomberg News had expected an annual reading of 4.7 percent.

After this, analysts believe that Reserve Bank of India would hold rates steady during its review meet.

Separate data showed industrial production rose 7.5 percent in January, handily beating estimates of a 6.4 percent rise and a growth of 7.1 percent in December.

Prices of pan, tobacco and intoxicants rose by 7.34%.

Gas prices and the cost of hospital services declined, but apparel prices and auto insurance rates spiked, which ticked the overall rate higher, Bank of Montreal economist Robert Kavcic noted. Year-over-year Core CPI (ex Food and Energy) came in at 1.85%, up from the previous month's 1.82%. However, the rate of price increase was higher for transport and communication services at 2.39 per cent (1.97 per cent January).

Deloitte India Lead Economist Anis Chakravarty said: "Overall, the latest IIP data points towards signs of economic recovery as the negative effect of the disruptive shocks of a year ago appear to be on the wane".

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