U.S. inflation inches higher ahead of the Fed meeting

Author: Portfolio Specialist Group

March 19, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

U.S. inflation moderately higher, retail sales slip

  • U.S. inflation rose 0.2% in February to an annualized pace of 2.2% growth. Despite the somewhat soft report, three- and six-month averages remain above the 12-month trend.
  • Core inflation rose 0.2% in February, holding annualized levels steady at 1.8%. Auto insurance prices jumped a record 1.7% in the month and are up nearly 10% from a year ago, as higher shelter and apparel costs also contributed to price pressures.
  • Also reported, U.S. retail sales slipped 0.1% in February to record a third consecutive month of declines. Core retail sales, which excludes autos, gas and building materials, rose 0.1% in the month.

Canada existing home sales continue downward slide

  • Canadian existing home sales fell 6.5% in February, stretching the two-month decline to 19.4% to start the year and down 16.9% on an annualized basis.
  • Canada’s two most-watched markets showed signs of cooling, with Toronto home sales down 35% year over year and Vancouver down 16%. Both markets are seeing a divergence within the housing sector however, as single-family home prices were slightly negative, while condo prices have recorded double-digit price growth from a year ago.
  • On a national level, the MLS Benchmark Price Index recorded a 10th strong monthly decline, though prices are 6.9% higher from a year ago, on average.

U.S. housing decelerates from recent highs

  • U.S. housing starts decelerated 7% in February with some slowing expected after the previous month reached a post-recession high. Single-unit starts rose 2.9% in the month, but were more than offset by a 28% decline in the volatile multi-unit segment.
  • The Midwest was the lone region to report a gain in starts, while the West was worst in the month.
  • Building permits also fell in February with both single- and multi-family permits declining. Like housing starts, the 5.7% contraction in permits was somewhat expected after coming off cycle-highs in the prior month.

Other economic news

  • Chinese industrial production grew at its fastest pace in six months, rising 7.2% in the January-February period. The U.S. also exceeded expectations with production rising 1.1% in February to an annualized growth rate of 4.3%, the strongest pace since early 2011. Meanwhile, eurozone activity slowed 1.0% in January to 2.7% annualized.
  • Eurozone inflation rose 0.2% in February, though a decline in food and energy prices pulled down the annualized measure to 1.1%. Outside of volatile components, core inflation rose 0.4% in February, holding annualized inflation unchanged from the prior month at 1.0%.

What’s to come

U.S. Fed meeting and Canadian inflation

  • The U.S. Federal Reserve is universally expected to raise policy rates on Wednesday, as housing data is also released during the week. The Bank of England also meets this week with no policy changes forecasted. In Canada, inflation and retail sales data will be reported on Friday.

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