U.S. consumer inflation firming; new home sales at 7-year high

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WASHINGTON (Mar 24): U.S. consumer prices rebounded in February as gasoline prices rose for the first time since June, and there were also signs of an uptick in underlying inflation pressures, keeping the Federal Reserve on course to raise interest rates this year.

The economy also received a boost from other data on Tuesday showing that new home sales surged to a seven-year high in February and manufacturing activity gained some momentum in March. The sturdy new home sales and factory data came despite harsh weather and a strong dollar, which have contributed to slowing activity early in the first quarter.

"The disinflationary thrust that has gripped the U.S. economy for the better part of the past year may have abated in February," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The Labor Department said its Consumer Price Index increased 0.2 percent last month after declining 0.7 percent in January. That ended three straight months of declines in the index.

In the 12 months through February, the CPI was unchanged after slipping 0.1 percent in January, as the impact of an earlier plunge in global crude oil prices lingers.

The dollar rose against a basket of currencies, while U.S. stocks opened flat. Prices for U.S. Treasury debt were mixed.

Fed officials have long viewed the energy-driven weakness in inflation as transitory. Economists said February's firmer inflation readings did little to shift the debate on the timing of the first interest rate hike.

While a June move remains on the cards, many economists are leaning towards a September tightening, arguing that policymakers will need to be confident about inflation rising towards the central bank's 2 percent target.

Economists expect both the effects of a strong dollar and weak energy prices to influence the inflation data through the first half of the year.

Fed Chair Janet Yellen said last week policymakers could raise interest rates when they had "seen further improvement in the labor market" and were "reasonably confident that inflation will move back to its 2 percent objective over the medium term."

DOWNWARD PRESSURE

"In the near-term, the stronger dollar will continue to put downward pressure on imported goods prices," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

"As the dampening effect from the stronger dollar fades in the second half of this year, we would expect to see core inflation gradually strengthen."

The so-called core CPI, which strips out food and energy costs, increased 0.2 percent in February after a similar gain in January. In the 12 months through February, the core CPI rose 1.7 percent, the largest increase since November.

For now, the signs of inflation are a good omen for an economy that has stumbled in recent months under the weight of a harsh winter, weak global demand, the strong dollar and the now-settled labor dispute at one of the country's busiest ports.

In a separate report, the Commerce Department said new home sales jumped 7.8 percent to a seasonally adjusted annual rate of 539,000 units last month, the highest level since February 2008.

Economists had forecast new home sales falling to a 465,000-unit pace last month.

In another report, financial information services firm Markit said its U.S. Manufacturing Purchasing Managers' Index rose to 55.3 in March, the highest reading since October, from 55.1 in February.

Crude oil prices fell 60 percent between June and January on fears of a global oil glut and the refusal of Saudi Arabia and other OPEC members to cut output. In February, Brent stabilized at around $60 and U.S. crude at around $50.

Last month, domestic gasoline prices rose 2.4 percent, the largest increase since December 2013, after tumbling 18.7 percent in January. Gasoline prices had declined for seven straight months.

Food prices increased 0.2 percent. Elsewhere, shelter costs increased 0.2 percent, accounting for about two-thirds of the increase in the core CPI. Shelter costs had advanced 0.3 percent in January.

Apparel prices rose 0.3 percent in February after a similar gain in January. There were also increases in airfares, new motor vehicle and used cars and trucks prices. However, the cost of medical care services declined for the first time since 1975.