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US inflation modest in 2017, despite rising retail sales

By Joseph Lubandi

Posted on January 13, 2018

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US inflation modest in 2017, despite rising retail sales

Washington, United States | AFP | Healthy retail sales in 2017 are another sign of the growing strength of the US economy, but inflation was slower than expected, according to the latest government data released Friday.

This combination of solid economic growth and consumer spending, that has come with falling unemployment but only tepid signs of wage and price increases, has baffled central bankers at the Federal Reserve.

But economists say details of the data from December show some hints that inflation may finally be on the rise.

The Consumer Price Index, which measures the cost of goods and services to individuals, rose just 0.1 percent in December, held down by falling energy prices, the Commerce Department said in its monthly report.

That was half the increase expected by analysts.

However, excluding volatile food and fuel components, “core” CPI rose 0.3 percent last month, the biggest jump since January 2017, on rising costs for shelter and medical care.

For the full year, CPI rose 2.1 percent, the same as 2016, while core CPI slowed, posting a 1.8 percent increase after the 2.2 gain in the previous year.

– Signs inflation rising –

But analysts drilling into details of the data note that inflation was accelerating in the final quarter of the year, which means the Fed may be right that the lack of price pressures earlier in 2017 was due to one-off factors.

“The three-month annualized change in the core CPI increased to 2.5 percent in December and is up markedly from the low of this year, zero percent, in May, providing further evidence that the earlier soft patch was only transitory,” Mickey Levy of Berenberg Capital Markets said in a research note.

In addition, low energy prices seen in the final month of the year are unlikely to be sustained, economists say.

The energy index last month fell 1.2 percent compared to November. Gasoline prices declined after a big jump in the prior month, outweighing the rise in winter fuel oil prices as a cold snap hit the Northeastern United States, the report said.

Energy prices were up sharply in 2017 compared to 2016, with gasoline rising nearly 11 percent and fuel oil up more than 15 percent.

Shelter costs rose 0.4 percent in the month, faster than usual, while medical care increased 0.3 percent and food was up 0.2 percent.

In addition, used car and truck prices jumped 1.4 percent in the month, while new car prices gained 0.6 percent.

But apparel prices fell for the fourth consecutive month, and airline fares fell 0.5 percent after a 2.4 percent drop in November.