US Consumer Prices Rise In Line With Estimates In February

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Weekly June E-mini Dow Jones Industrial Average

Core prices - which exclude the volatile food and energy categories - also climbed 0.2 per cent.

Consumer food prices rose 3.26 percent in February, compared with 4.70 percent in January, as prices of pulses fell more than 17 percent from a year earlier. The seasonal trend of rising food prices as the summer approaches, may prevent a further dip in food inflation in the ongoing month. Subsequent data have shown that hourly pay gains remain moderate. Markets now agree with Fed projections for three hikes, though a more aggressive inflation move could trigger additional increases.

USA inflation fears have eased slightly following the latest CPI data, limiting dollar support. January's surge in inflation cemented investors' expectation of an interest rate hike in March and increased the possibility of a fourth hike in 2018. Many economists expect that at some point it will raise its projection to four rate increases this year amid optimism that the robust labor market will start boosting wage growth at least by the second half of the year.

Avery Shenfeld of CIBC Economics agrees. was looking for a 0.2% increase MoM in seasonally adjusted Headline CPI and 0.2% in Core CPI.

"The broader story remains that of USA monetary policy normalization in the backdrop of an improving economy and a further decline in currency market volatility would only fuel more risk taking appetite", said Commerzbank's FX strategist Thu Lan Nguyen.

Fed officials target 2% annual inflation based on a separate index, the Commerce Department's gauge linked to consumer spending. But the Fed's preferred inflation gauge has been nearly entirely below that target for the past six years.

Less strength in transportation costs contributed, with new vehicle prices and used auto prices both dropping. In contrast, the indexes for communication, new vehicles, medical care, and used cars and trucks declined over the month.

The Fed has forecast three rate hikes this year.

Last week's jobs report, which showed that employers added 313,000 jobs, the most in 1.5 years, indicated that such an acceleration may be happening.

"Today's CPI inflation data is likely to add further colour to the U.S. inflation picture, however it probably won't add any further clarity to the overall inflation outlook puzzle, given that the Fed doesn't use CPI as its inflation benchmark", said Michael Hewson, chief markets analyst at CMC Markets in London.

Manufacturing sector grew by 8.7 per cent during January compared with 2.5 per cent a year ago. The capital goods sector continued to witness strong growth of 14.6% in January, although this was lower than the 16.44% seen in the previous month. The commodity markets have proven cautious as investors have sat on the sidelines and wait for the critical results from the U.S inflation figures.

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