U.S. January CPI climbed 0.6%, with the core up 0.3%. It’s the biggest headline gain since February 2013, while the core gain is the largest since August. There were no revisions to December’s respective gains of 0.3%, 0.2%. On an annual basis, headline prices are up 2.5% y/y (the fastest since March 2012) versus 2.1% y/y, while the core increased to a 2.3% y/y pace from 2.2% y/y. Energy prices paced the strength, rising 4.0%. Transportation costs surged 2.2%. Apparel increased 1.4%. And commodities were up 1.0%. Service costs edged up 0.3%. Housing was up 0.3% too, with owners’ equivalent rent up 0.2%. Food prices were 0.1% higher. Medical care edged up 0.2%. The strength in the data will add to expectations for a Fed tightening in March.
U.S. retail sales rose 0.4% in January, with the ex-auto component up 0.8%. December’s 0.6% headline jump was revised higher to 1.0%, while the 0.2% ex-auto gain was bumped up to 0.4%. So this is a very strong report. Gains were broad-based. Sales excluding autos, gas, and building materials rose a hefty 0.6% versus a 0.1% gain previously (revised from unchanged). Vehicle sales dropped 1.4% from a 3.2% December gain (revised from 2.4%). Gas station sales surged 2.3% after a big 3.2% jump in December (revised from 2.0%). Sporting goods sales rose 1.8%, while electronics increased 1.6%, with department stores up 1.2%. Meanwhile, real average hourly earnings dropped 0.5% versus unchanged in December, and were unchanged y/y versus 0.8% y/y previously.
U.S. Feb Empire State manufacturing index rose 12.2 points to 18.7 after dipping 1.1 points to 6.5 in January. This is the highest level since the 30.2 in September 2014. The employment index improved further to 2.0 from -1.7, with the average workweek at 4.1 from -4.2. New orders jumped to 13.5 from 3.1. Prices paid increased to 37.8 from 36.1, with prices received at 19.4 from 17.6. The 6-month general business index dipped to 41.7 from 49.7, with the forward employment component at 28.6 from 27.7, while new orders were 43.8 from 39.8, with capital expenditures at 22.4 from 25.2. This is another strong report that keeps a March Fed rate hike in play.
The dollar spiked higher after the mix of data, EURUSD dropped to trend lows of 1.0519 from 1.0555, as USDJPY rallied to 114.95 from 114.50 and Cable broke 1.2400 to trade as low as 1.2378.
The March FOMC meeting is definitely a “live” one and a rate hike is definitely in the cards. That’s the indication of the Fed funds futures market after the trifecta of much stronger than expected data. The jump in implied rates now suggest about a 35% chance for a hike a month from now. It will be interesting to hear if Chair Yellen is quizzed on the data and the chances for March action.
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