US core consumer prices record biggest gain in 11 months in December

Consumer retail food

A shopper looks through the produce section in a Walmart Neighborhood Market in Chicago

Underlying US consumer prices recorded their largest increase in 11 months in December amid strong gains in the cost of rental accommodation and healthcare, bolstering expectations that inflation will accelerate this year.

Analysts polled by Reuters had predicted December's consumer inflation rate would climb to 5.10%, the highest since July 2016, from 4.88% in November.

The headline rate, which rose at a softer-than-expected 0.1% monthly rate to an annual pace of 2.1%, was held back in December by a 2.7% fall in petrol prices. "The uptick in the CPI inflation to a 17-month high in December 2017 validates the caution displayed by the Monetary Policy Committee (MPC) in its recent reviews", said Aditi Nayar, principal economist of Icra.

The food index rose 0.2%, while prices for food at home increased 0.1%.

RBI expected inflation to range between 4.3 and 4.7% in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced.

Excluding volatile food and fuel components, "core" CPI rose 0.3% last month, the biggest jump since January 2017, on rising costs for shelter and medical care.

Electricity generation growth too slowed to 3.9% in November from 9.5% in the corresponding month a year ago. The government figures show that gas prices have risen 6.9 percent from December 2016. The statistical impact of an unfavorable base also rose the year-on-year print.

The 10-year breakeven rate ended marginally higher on the day at 2.02 percent in advance of next week's $13 billion of 10-year TIPS supply.

"The disaggregated data poses a mixed trend with high growth in consumer non durables, infra/construction goods and capital goods offset by modest expansion in basic goods, intermediate goods and consumer durables", she added.

Paul Ashworth, chief USA economist at Capital Economics, said the inflation report bolstered his view that the Fed will accelerate rate increases this year.

Low base from November 2016 helps India Inc's output grow 8.4%.

Two crucial macro numbers - retail inflation for December and factory output for November - released by the government on Friday indicate that the economy could well be on the recovery path. The industry group "Manufacture of pharmaceuticals, medicinal chemical and botanical products" has shown the highest positive growth of 39.5 per cent, followed by 29.1 per cent in computer, electronic and optical products and 22.6 per cent in "manufacture of other transport equipment".

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