March 16, 2012 / 12:47 PM / in 6 years

Instant View: Gasoline pushes up consumer prices in February

NEW YORK (Reuters) - Consumer prices rose by the most in 10 months in February as the cost of gasoline spiked, a government report showed on Friday, but there was little sign that underlying inflation pressures were building up.

CONNECTICUT.

“CPI was pretty much in line with expectations. You look at the components we did have this top in energy, coming from gasoline and fuel oil, some off-set in the home heating oil side. We’re still getting some pretty good demand in discretionary spending areas. New car prices were up six-tenths, that’s a pretty good sign of demand in the economy.

“It fits in line with the notion that inflation this year on a core basis is probably going to come in around 2.5 percent, on the headline basis it’s probably going to be a little bit higher because of the energy complex. That’s assuming some moderation in the current pricing of energy, and if we don’t get that moderation it might even move above 3 percent. We’re of the opinion oil prices might even come down a bit, that the fear of Iran is a bit overblown and the supply-demand situation for energy is not supportive of these prices.

“Profit margins are holding up, maybe even doing a little bit better for those products that are in strong demand, and we’re seeing some of that unfold in the auto sector. If you thought the auto sales gain in February was sparked by promotions, this number confirms that was not the case. And that’s important. We’re getting auto sales without more aggressive (sales) programs. So that’s a good thing for profit margins. It also means the consumer really is part of this pent-up demand.”

ANTHONY KARYDAKIS, SENIOR U.S. ECONOMIST, COMMERZBANK AG, NEW YORK

“The great news is that nearly all the categories in the core were well behaved. The message here is we continue to have the complete absence of the price pressure given the slack in the economy.

“Looking ahead, the upward pressure on gasoline we have seen in March has set the stage for another strong rise in headline inflation.

“I don’t think there is any deflation risk. We don’t have any serious concerns about deflation as long as the economy shows slow, steady growth.”

CHAD MORGANLANDER, PORTFOLIO MANAGER, STIFEL, NICOLAUS & CO, FLORHAM PARK, NEW JERSEY

“The inflation numbers are lackluster, should have very little influence on the yield curve today. The great driver of the Treasury market today is a continuation of the rotation into risk assets as economic data points show improvement here in the U.S.”

TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

“The bottom line on this particular number is outside of apparel you would have printed two tenths of a percent but because of apparel, you saw something of a modest gain. On a year-on-year basis core prices are still near a high. That’s a major acceleration.”

“If there was really one factor that really weighed heavily on core, that was apparel prices. Apparel prices have been on something of a tear in the course of the last year, up until very recently. You basically had them go from -1.3 percent in October 2010 to 4.8 percent in the November that just passed. This was the commodities story — cotton prices on the rise. Apparel prices are now actually starting to level off. If you look at the month-on-month changes, there has actually been a decent amount of volatility in the recent months. There’s this fundamental fight within the apparel segment. You are looking at a modest demand backdrop and what you’re trying to find in the apparel context is almost like an equilibrium.”

RAY ATTRILL, HEAD OF FX STRATEGY FOR NORTH AMERICA, BNP PARIBAS, NEW YORK

“We are seeing some dollar selling coming through, which is what I would have expected. This is definitely a bond friendly number... We think this core number will make the Fed feel more comfortable about core inflation prices.”

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

“While headline CPI posted the 0.4% gain the market accurately forecasted for February, core CPI slowed to growth of 0.1% over the month, sliding in below expectations of 0.2% growth. The headline represents an above-trend increase, as consumer prices barely changed in the last quarter of 2011 (up just 0.1% in Nov and flat otherwise) and prices were only up 0.2% in January. The difference in growth can be explained by higher energy prices (of course gasoline), where price growth was the largest change in nearly a year (Mar ‘11, 3.3%). Even with the sudden ascent, overall prices rose by 2.9% in the last 12 months, matching January’s annual price growth (and January was a deceleration from December’s).”

MARKET REACTION

STOCKS: U.S. stock index futures hold steady at slightly higher levels .N.

BONDS: U.S. Treasury debt prices hold steady at lower levels <US/>.

FOREX: The dollar loses ground versus the euro and pares its earlier gains versus the yen <FRX/>.

Americas Economics and Markets Desk; +1-646 223-6300

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