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US consumer prices unexpectedly weakened last month and a sharp drop in automobile sales suggested Americans were reining in their spending, casting fresh doubt...

US consumer prices unexpectedly weakened last month and a sharp drop in automobile sales suggested Americans were reining in their spending, casting fresh doubt on expectations for ‘Trumpflation’ that has driven a post-election market boom.

The bout of disappointing data issued on Friday was the latest to dent hopes that a proposed deregulation push and new infrastructure spending under President Donald Trump would trigger faster growth in the US and help drag the global economy out of the doldrums.

Even before the release of the new inflation data — which showed core consumer prices other than food and energy slipping 0.1 per cent last month, confounding expectations of an increase — financial markets had begun to cast doubt on the euphoria that gripped investors in the immediate aftermath of Mr Trump’s election.

Further muddying the picture, a closely watched tracking forecast by the Atlanta Federal Reserve for the annualised rate of growth in the first quarter dipped to 0.5 per cent from a previous reading of 0.6 per cent on the back of Friday’s reports. In early February, the model pointed to a growth rate of 3.4 per cent. If accurate, that pace of expansion would be the lowest in three years. A separate estimate from the New York Fed was also cut to 2.6 per cent from 2.8 per cent.

Yields on benchmark US Treasuries, which drop when inflation and growth prospects decline, have fallen for five straight weeks, hitting levels not seen since the week after the November vote.

The March inflation reading represented a “huge downside miss” and will leave “lingering doubts about the popular reflation narrative” until prices show signs they are rising agin, said Michael Feroli, chief US economist at JPMorgan.

The month-on-month fall in core prices was the first since 2010, an event that had not occurred previously since the 1980s. The year-on-year core consumer inflation rate dipped to 2 per cent, also missing forecasts of an increase, to sit at its lowest level since 2015.

Jim Baird, chief investment officer at Plante Moran Financial Advisors, said that compared to the “bigger surprise” of the inflation drop, the retail sales figures were merely “disappointing”.

Still, they remain an important gauge of consumer spending and fell by 0.2 per cent month-on-month in March, the second straight decline.

The figure was weighed down by the drop in auto sales that have been slowing after a strong performance in 2016. But the control group that is seen as less volatile rose by a better than expected 0.5 per cent in March, and the February reading was revised lower.

The heightened expectations for disappointing first-quarter growth not only pose a challenge to Mr Trump, who has vowed to ramp up the rate of US economic growth to around 3 per cent, but also to the Federal Reserve, which has signalled a gradual tightening of monetary policy this year to prevent the economy from overheating.

Mr Feroli said the data should give Fed rate-setters who have been resisting a faster pace of tightening more ammunition in the policy debate.

“We don’t think this is enough to cause the Fed to swerve from their stated desire to continue gradually increasing the funds rate, though it may embolden the doves’ rhetoric,” he said.

US fixed income and equities markets were closed for the Good Friday holiday. Stocks had ended the week on the back foot on Thursday, with a closely watched measure of expectations for equities market volatility posting its biggest weekly rise since before the November election.

Some economists argued that the recent disappointing inflation signs could be temporary. Paul Ashworth, chief US economist at Capital Economics, blamed a “perfect storm of factors,” insisting “many of them [are] one-offs”.

Added Thomas Simons, senior money market economist at Jefferies: “The bottom line on this data release is that consumer spending is still on an upward trajectory, though [the first quarter] was a little bit mixed”.

Price growth has lagged behind for much of the recovery from the 2008 recession, something that has confounded the Fed. However, recent signs that inflation had begun to finally pick up more rapidly, while employment and wages rose, has been one reason policymakers have signalled three rate increases for 2017.

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