Insights and Market Perspectives

U.S. inflation inches higher

Author: Portfolio Specialist Group

April 16, 2018

AGF Weekly Perspectives

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

U.S. inflation inches higher

  • U.S. inflation fell 0.1% in March as gasoline prices declined 4.9%. On an annualized basis, however, inflation rose to 2.4%, the highest level in over a year, as last year’s sharp drop in cell phone contract prices rolled off of the year-on-year calculation.
  • Core inflation also rose 0.2% to bring the annualized rate to 2.1%.
  • The U.S. Federal Reserve’s (Fed) preferred measure of price pressures, core personal comsumption expenditures (PCE), has yet to reach the central bank’s 2% target, though it appears inflation is trending higher and is supportive of continued rate hikes.

Canadian housing takes a pause

  • Canadian housing starts edged lower in March after decelerating 2.5% from the prior month, though remains elevated with the 12-month average slightly below the strongest pace since 2008.
  • Single-detached starts picked up with 8% growth in March but were more than offset by a 7% decline in urban multi-family starts, which reverted after spiking in the prior month. Multi-unit activity continues to outpace single-detached starts by around two-to-one.
  • Ontario experienced most of March’s pull-back, though in context, a correction was expected after the province recorded its third-highest number of starts in a quarter-century last month. Outside of Ontario starts in most other provinces were positive in March, led by British Columbia, Newfoundland and Alberta.

Fed minutes supportive of further tightening

  • Minutes from the Fed’s March meeting revealed an upbeat tone, with the committee expecting the economy will grow at “a solid rate” with the help of government spending and tax cuts.
  • While tax cuts are clearly a net-positive for growth, the Fed did acknowledge some downside risk in the event not all cuts are made permanent in future years.
  • A “strong majority” also believe trade issues pose a clear downside risk for the economy, conceding some concern on the topic, which was largely downplayed in the Fed’s initial comments accompanying March’s hike. Overall, the Fed appears comfortable with quarterly rate hikes over the near-term.

Other economic news

  • Eurozone industrial production unexpectedly declined for a third-straight month in February, falling 0.8%, as activity in Germany and Italy slowed. On an annualized basis, production has risen 2.9%, though much lower than the prior two month’s levels, adding to concern that momentum may be slowing in the region.
  • Chinese factory inflation, as measured by PPI, recorded a fifth-consecutive decline to a 17-month low of 2.1% annualized in March. The consumer price index, or CPI, also missed expectations at 2.1% annualized, suggesting a slowdown in the world’s second-largest economy.

What’s to come

Bank of Canada meets

  • The Bank of Canada is widely expected to leave rates unchanged at their April meeting, ahead of inflation and retail sales data released on Friday. Chinese GDP and industrial production are set to be reported on Monday, while in the U.S., housing data will be reported on Tuesday.

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