Economic Update – US Inflation Surges, Janet Yellen Talks at Senate Banking Committee

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Earlier today the latest figures for inflation were released in the US, rising from 2.1% to 2.5%.

Here is a rundown of some leading headlines regarding the inflation rise:

City AM: Five-year high for US inflation in biggest jump in consumer prices since 2013

  • Consumer prices in the US jumped in January by the most since 2013 as higher oil prices continue to make their impact around the world.
  • Prices increased by 0.6 per cent in January to push annual inflation to 2.5 per cent, higher than expected, according to the US Bureau of Labour Statistics (BLS).
  • Inflation had previously risen above the Federal Reserve’s two per cent target for the first time since 2014 in December, after a two-year period of low price growth and even bouts of deflation.

Investing.com: U.S. consumer prices increase at fastest pace since February 2013

  • U.S. consumer prices rose at the fastest pace since February 2013 in January, indicating that inflation is gathering momentum, official data showed on Wednesday.
  • The Commerce Department said that consumer prices increased by a seasonally adjusted 0.6% last month, compared to forecasts for 0.3% and following a gain of 0.3% in December.
  • Core CPI increased at annualized rate of 2.3% last month, topping forecasts for 2.2% and up from 2.2%. Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less.

US retail sales are also on the rise:

Market Watch: U.S. retail sales sizzle in January

  • Most U.S. retailers posted strong sales in January, even beleaguered department stores, perhaps a sign that higher consumer confidence since the election has encouraged Americans to spend more for now.
  • Retail sales rose 0.4% last month following a much bigger gain in December than originally reported, the government said Wednesday. Economists polled by MarketWatch had forecast an 0.2% increase.

Yesterday, Federal Reserve Chairwoman Janet Yellen gave evidence to the Senate Banking Committee, answering numerous questions regarding both interest rates and the Fed’s balance sheet:

Bloomberg: Yellen Sees More Rate Hikes Ahead If Economy Stays on Course

  • Federal Reserve Chair Janet Yellen said more interest-rate increases will be appropriate if the U.S. economy meets the central bank’s outlook of gradually rising inflation and tightening labor markets.
  • “At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she told the Senate Banking Committee in prepared remarks Tuesday.
  • “Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” she added.

Market Watch: Fed likely to raise interest rates at coming meetings, Yellen says

  • The Federal Reserve Chairwoman Janet Yellen on Tuesday left open the possibility of an interest-rate increase as early as the central bank’s next policy meeting in March.
  • the Fed would depend heavily on U.S. economic data to determine if the labor market continues to strengthen and inflation is moving up to the central bank’s 2% target, she said.
  • She said she wants to get the balance sheet down and mostly to Treasurys. The Fed now also holds mortgage-related securities. The Fed will reduce its balance sheet in an orderly and predicable way, the Fed chief said, and won’t start until interest rates are higher.

Finally, Spain’s rate of inflation was today confirmed at 3%, after initial flash data was released two weeks ago:

RTT News: Spain Inflation Accelerates As Estimated In January

  • Spain’s consumer price inflation accelerated further in January to the highest level in more than four years, confirming the flash data published earlier, latest figures from the statistical office INE showed Wednesday.
  • The consumer price index rose 3.0 percent year-over-year in January, faster than the 1.6 percent climb in the preceding month. That was in line with the preliminary figure published on January 31.
  • This was the highest inflation since October 2014, when prices had grown 3.5 percent.
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