Consumer Prices Tick Up; New Home Sales at 7-Year High

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A Marshalls Plc Store Ahead Of Consumer Comfort Figures
David Paul Morris/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- U.S. 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 Tuesday showing new home sales surged to a seven-year high in February and manufacturing activity gained some momentum in March.

%VIRTUAL-pullquote-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.%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 Labor Department said its Consumer Price Index increased 0.2 percent last month after dropping 0.7 percent 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 percent 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 Chair 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 percent objective over the medium term."

Downward Pressure

"In the near-term, the stronger dollar will continue to put downward pressure on imported goods prices," said Paul Ashworth, chief U.S. 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 percent in February after a similar gain in January. In the 12 months through February, the core CPI rose 1.7 percent, 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 percent 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 said its U.S. Manufacturing Purchasing Managers' Index rose to a five-month high of 55.3 in March from a reading of 55.1 in February.

Crude oil prices fell 60 percent between June and January on fears of a global oil glut and the refusal of Saudi Arabia and other OPEC members to cut output. In February, Brent stabilized at around $60 and U.S. crude at around $50.

Last month, domestic gasoline prices rose 2.4 percent, the largest increase since December 2013, after tumbling 18.7 percent in January. Food prices increased 0.2 percent.

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

There were gains in the prices of apparel, airfares, new motor vehicle and used cars and trucks prices. However, the cost of medical care services declined for the first time since 1975.

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9 Numbers That'll Tell You How the Economy's Really Doing
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Consumer Prices Tick Up; New Home Sales at 7-Year High
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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