U.S. Consumer Prices On the Rise

A rise in consumer prices in December and growth in retail sales exceeded expectations. With 2017 ending on a good note, and inflation numbers steady, U.S. economic growth continues. Forecasts for Q4 growth were adjusted 0.4% in December from the prior month. Analysts are expecting a 2.7% annual growth rate for gross domestic product in the final three months of 2017, up from its previous 2.3% estimate.

According to the U.S. Labor Department, signs of rising inflation as well as strong growth in the core prices of goods (excluding food and energy), fueled CPI growth. The CPI, or  consumer-price index rose just 0.1% from November 2017.

“Recently, we’ve seen stronger gains in core inflation and there are a lot of good reasons to expect inflation to continue rising at this pace” said Keith Knutsson of Integrale Advisors.

Currently, U.S. inflation is down and the unemployment rate is at its lowest level in nearly 20 years. Therefore, businesses and corporations should be competing more aggressively for workers. The yield on the 10-year U.S. Treasury note benchmark closed above 2.5% earlier this week. The 10-year breakeven inflation rate, derived from Treasury inflation protected securities, has climbed since November 2017. Last month, core consumer prices rose 2.2%, up from a 0.9% gain in July.

At their latest meeting in December, Fed officials changed their forecasts for economic growth this year and lowered their forecast for the unemployment rate, stating that a short-term boost resulted from the recently passed GOP tax cuts.

However, the Fed did not change their projections for raising interest rates in 2018. The Federal Reserve is expecting three interest rate increases this year. The target is to raise the benchmark federal-funds rate to a range between 1.25% and 1.5%. The next rate hike is expected to occur in March 2018.