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Economic Watch: Inflation Tame, Housing Starts Slip

March 18, 2014

By Evan Lockridge

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Inflation appears to be under control while new home starts in the U.S. fell slightly, according to separate reports released Tuesday.

The U.S. Labor Department reports the Consumer Price index increased 0.1% in February from the month before, the smallest hike since last October, while gaining just 1.1% over the last 12 months.

The one area that surged was food prices, picking up 0.4% in February, the biggest jump since September 2011, with grocery prices gaining 0.5%. The food index has risen 1.4% over the past year, with grocery prices up 0.9%.

The increase in the February food index accounted for more than half of February’s overall inflation gain, as evidenced by the “core CPI,” which strips out food and energy prices, increasing 0.1% during the month.

“Inflation remain subdued, allowing the Federal Reserve to keep its focus on the uneven nature of the labor market,” said Lindsey Piegza, chief economist for the investment firm Sterne Agee. “Benign price pressures also continue to offer the Fed additional wiggle room surrounding the pace of purchases should the labor market take a significant misstep. With the most recent February employment release reporting a rise of more than 175,000, it is clear the labor market is losing momentum from the start of 2013, but it is not clear that underlying momentum in the labor market has declined drastically, a prerequisite for tapering the taper.”

Meantime, the pace of new home starts in the U.S. slipped 0.2% in February from January to an annual rate of 907,000, according to the U.S. Commerce Department.

Single-family housing construction rose 0.3% in February to an annual rate of 583,000 units while multifamily starts edged 2.5% lower to a 312,000-unit pace.

Regionally, combined housing start activity was mixed in the month, posting gains of 34.5% in the Midwest and 7.3% in the South but declined 37.5% in the Northeast and 5.5% in the West.

In contrast, the number of new building permits issued, an indicator of future activity, surged 7.7% to an annual rate of more than 1 million, the highest level since October. Regionally, overall permits rose 6.3% in the Northeast, 9.9% in the South and 17.9% in the West but declined 11.8% in the Midwest.

“While housing construction is in a recent lull due to unusual weather conditions, we expect to see an improvement as the winter weather pattern subsides and builders prepare for the spring selling season,” said National Association of Home Builders Chief Economist David Crowe. “Competitive mortgage rates, affordable home prices and an improving economy all point to a continuing, gradual strengthening of housing activity through the rest of the year.”

 

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