Upbeat numbers brighten US economic outlook

Upbeat numbers brighten US economic outlook

WASHINGTON: US consumer prices rebounded in February as gasoline prices rose for the first time since June, and there were also signs of an uptick in underlying inflation pressures, keeping the Federal Reserve on course to raise interest rates this year.

The economy, which has been on the back foot in recent months, received another boost from other data on Tuesday showing new home sales surged to a seven-year high in February and manufacturing activity gained some momentum in March.

A real estate sign advertising a new home for sale is pictured in Vienna, Virginia. US home resales rebounded in February. REUTERS

The upbeat reports came despite harsh weather and a strong dollar, which have contributed to slowing economic activity early in the first quarter.

"It doesn't corroborate the further disinflation story. There is some chance economic activity is going to pick up a little bit this spring, but it's not really clear how much and that matters for the timing of the first rate hike," said Guy Berger, an economist at RBS in Stamford, Connecticut.

The Labour Department said its Consumer Price Index increased 0.2% last month after dropping 0.7% in January, ending three straight months of declines in the index.

In the 12 months through February, the CPI was unchanged after slipping 0.1% percent in January, as the impact of an earlier plunge in global crude oil prices lingers.

Fed officials have long viewed the energy-driven weakness in prices as transitory and economists said February's firmer readings were in line with policymakers' projections that inflation will move back to the central bank's 2% target.

While a June move remains on the cards, many economists are leaning towards a September tightening, arguing that the effects of a strong dollar and weak energy prices would continue to influence inflation data through the first half of the year.

Fed chairwoman Janet Yellen said last week policymakers could raise interest rates when they had "seen further improvement in the labor market" and were "reasonably confident that inflation will move back to its 2% objective over the medium term."

"In the near-term, the stronger dollar will continue to put downward pressure on imported goods prices," said Paul Ashworth, chief US economist at Capital Economics in Toronto.

"As the dampening effect from the stronger dollar fades in the second half of this year, we would expect to see core inflation gradually strengthen."

The so-called core CPI, which strips out food and energy costs, increased 0.2% in February after a similar gain in January. In the 12 months through February, the core CPI rose 1.7%, the largest increase since November.

For now, the signs of inflation are welcome for an economy that has stumbled in recent months under the weight of a harsh winter, weak global demand, the strong dollar and the now-settled labor dispute at one of the country's busiest ports.

In a separate report, the Commerce Department said new home sales jumped 7.8% to a seasonally adjusted annual rate of 539,000 units last month, the highest level since February 2008.

Manufacturing, which has been hurt by supply chain disruptions because of the ports labor strife, showed some strength this month.

Financial information services firm Markit Economics said its US Manufacturing Purchasing Managers' Index rose to a five-month high of 55.3 in March from a reading of 55.1 in February.

Elsewhere, shelter costs increased 0.2%, accounting for about two-thirds of the increase in the core CPI.

There were gains in the prices of apparel, air fares, new motor vehicle and used cars and trucks prices.

However, the cost of medical care services declined for the first time since 1975. reuters 

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