Goldman Sachs said the inflation report was “slightly worrying”.
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Inflation likely to remain Fed focus
By Krishna Guha and Eoin Callan in Washington
Published: March 16 2007 13:14 | Last updated: March 17 2007 00:57
ft.com
US inflation remained uncomfortably firm in February for the second consecutive month, making it very likely that the Federal Reserve will retain its focus on price pressures at its policy meeting next week.
Core consumer price inflation – excluding volatile food and energy costs – eased a fraction to 0.24 per cent in February, while headline inflation was also higher than expected.
Monthly inflation numbers are volatile but, with producer prices also stronger this week, the Fed will be concerned that the apparent easing in inflation pressures in the final quarter of 2006 has not carried through into the first quarter of this year.
This is likely to leave Fed policymakers reluctant to ease their stance, in spite of market concerns on growth.
Goldman Sachs said the inflation report was “slightly worrying”. Haseeb Ahmed, an economist at JP Morgan, said the figures “highlight an inflation problem for the Fed”.
Headline inflation picked up pace with a rise of 0.4 per cent, led by a 4.7 per cent increase in the cost of fruit and vegetables. Energy costs were 0.9 per cent higher after a decline of 1.5 per cent the previous month.
Rents and imputed rents for owner-occupiers remained strong, significant, because many inside and outside the Fed have raised hopes that easing rents would eventually help cool inflation. As yet, there is very little evidence that this is happening.
John Ryding, economist at Bear Stearns, said: “We still expect the Fed to maintain its inflation bias in the policy statement that will be released on March 21.”
A separate survey showed a drop in consumer confidence among wealthier Americans that analysts said might be attributable to recent market volatility and a crisis in the subprime mortgage market.
US markets have experienced a wild ride in recent weeks amid economic anxieties fuelled by the collapse of mortgage lenders exposed to rising defaults on high-risk home loans.
The University of Michigan consumer sentiment index for March slipped to 88.8 from 91.3 in the previous month, with the biggest drop among more affluent households. |
