US consumer prices raise inflation fears

20 February 2008 17:57  [Source: ICIS news]

WASHINGTON (ICIS news)--US consumer prices rose more than anticipated in January, the Labor Department reported on Wednesday, driving stocks down on Wall Street amid fears that inflation risks could chill further interest rate cuts.

 

The department said that its consumer price index (CPI) rose 0.4% in January on a seasonally adjusted basis, reflecting increased consumer costs for energy, food and a range of other basic needs.

 

The index for all consumer items except energy and food - which are often separated from the overall CPI because those prices can fluctuate widely - rose 0.3% in January, the department said.

 

However, that 0.3% increase in the so-called core price index was up from the 0.2% increases seen in December and the previous eight months. 

 

The increase in consumer costs for items other than energy and food “reflects larger increases for apparel, medical care, recreation, education, communication and other goods and services”, the department said.

 

Although modest, that broad-based increase in consumer prices is the sort of indicator that the Federal Reserve Board - the US central bank - might see as a harbinger of rising inflation.

 

The Fed was widely expected to cut interest rates at its 18 March meeting, but with oil having topped $100/bbl and broad consumer prices also on the rise, analysts worry that the Fed may see inflation as the greater risk to the economy and consequently hold interest rates steady.

 

Wall Street reacted to the Labor Department CPI figures, sending the Dow Jones Industrials Average down more than 70 points at midday Wednesday.

 

A further interest rate cut might not be in jeopardy because the Commerce Department reported on Wednesday that permits for planned US new home construction fell 3% from December and were fully 33% below the January 2007 figures.

 

Those declines indicate that the US housing market slump has yet to hit bottom and could be seen as supporting further action by the Fed to reduce interest rates in hopes of reviving the housing sector and staving off a recession.

 

The US home construction industry is a key downstream consuming sector for chemicals and chemical-related products.

By: Joe Kamalick
+1 713 525 2653

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