In February, US consumer prices stayed flat on a monthly basis, while the consensus was looking for a marginal increase. On a yearly basis, CPI inflation dropped from 2.6% Y/Y to 2.1% Y/Y, while an outcome of 2.3% Y/Y was expected. A 0.5% M/M decline in energy prices pushed the CPI reading lower, while food prices increased by 0.1% M/M. Core CPI, excluding food and energy, rose by 0.1% M/M, after posting the first monthly drop since 1983. Core consumer prices edged up due to price increases in medical care (0.5% M/M), vehicles (0.4% M/M) and education (0.2% M/M). Annual core CPI (1.3% Y/Y) is now at the lowest level in six years, which indicates that the Fed’s loose monetary policy is not (yet) boosting prices. There was no rebound in the shelter component that surprised on the downside in January. All in all, the report was softer than expected and shows that inflationary pressures are totally absent at the core level.
In the week ended March the 13th, initial claims fell by 5 000 to a total number of 457 000, broadly in line with the consensus estimate (455 000). Continuing claims, which are reported with an extra week lag, rose by 12 000 to 4 579 000, significantly above the consensus estimate of 4 522 000. The outcome indicates that claims are returning back to normal levels after the spike in February. Still, the claims remain at rather elevated levels, suggesting that underlying payrolls growth should still be subdued.
In March the Philadelphia Fed survey increased from 17.6 to 18.9, slightly above the consensus estimate of 18.0. The details show a more mixed picture with a sharp decline in new orders (9.3 from 22.7) and inventories (-11.0 from 3.2), but also shipments (13.6 from 19.7) fell significantly. Number of employees (8.4 from 7.4), delivery time (7.9 from -2.1), average workweek (7.6 from 1.9) and unfilled orders (-4.9 from -7.5) improved, with the improvement in labour market condition worth mentioning. Prices indices were mixed as prices paid rose from 32.4 to 38.6, while prices received declined from 3.7 to -0.4. Expectations index (6-month forward) jumped sharply, suggesting firms are optimistic on the outlook. While the details were a bit mixed, overall the report still shows sustained, robust growth in the manufacturing sector.
Other: UK public finances deteriorate less than expected
In the UK, public sector net borrowing was less than expected in February. The Office for National Statistics said public sector net borrowing rose to £12.4 billion, from a downwardly revised £45 million. Central government tax revenue rose by 3.6% Y/Y as value-added taxes rose by 29.9% Y/Y, due to the rise in VAT from 15% to 17.5%. Central government spending increased by 15% as welfare costs surged. The ONS spokesman said the improvement in tax receipts was “partially to do with the rise in VAT, but reflected also increased economic activity. A measure of cash entering and leaving the Treasury showed a £7.7B deficit in February, while a £11B shortfall was expected. M4 money supply slowed more than expected from 4.7% Y/Y to 3.6% Y/Y.
The March CBI industrial trends survey showed continued weakness in total orders (-37 from -36). Export orders, on the contrary, continued to improve (-18 from - 23) and came out at the highest level since August 2008. With total orders still fragile, the volume of output remains subdued (5 from 7). Inflation is expected to pick up further in the coming months as average prices rose from 8 to 17 in March.
