Factory output up 7.5%, capital goods 14.6% in Jan

Yields on 10-year government bonds was at 7.697% compared to Friday’s close of 7.671

Yields on 10-year government bonds was at 7.697% compared to Friday’s close of 7.671

Tuesday's economic report calendar was dominated by the Consumer Price Index (CPI) for February released by the U.S. Department of Labor.

Central Statistics Office (CSO) on Monday said that retail inflation has fell to a four-month low of 4.44 per cent and industrial production has zoomed by 7.5 per cent - a double delight that could ease pressure on RBI for increasing interest rates.

"The RBI will have room to push back a rate hike, but not for too long as input price pressures have been on the rise over the past one year, and price pass-through to consumers is now taking place", said Teresa John, economist at Nirmal Bang Pvt.

The core gauge rose less than in the prior month despite apparel costs, which helped drive the outsize gain in January, advancing 1.5% in February following a 1.7% increase.

Tame core goods prices (only 0.1% this month, and -0.5% yr/yr) continue to keep inflation at bay, a reflection of the remaining global economic slack offsetting a tightening United States economy. Volume is low as investors prepare for a week of major economic reports including consumer inflation, producer inflation, retail sales and building permits. Food price inflation was at 4.7% in January. Fuel and light inflation stood at 6.8 percent, compared with 7.58 percent in January, while housing inflation stood at 8.28 percent, from 8.33 percent the previous month.

As per use-based classification, the growth rates in January 2018 over January 2017 are 5.8 percent in primary goods, 14.6 percent in capital goods, 4.9 percent in intermediate goods and 6.8 percent in infrastructure/construction goods.

However, the index for food remained unchanged due to index for food at home compensated the increase in the food away from home index. The seasonal trend of rising food prices as the summer approaches, may prevent a further dip in food inflation in the ongoing month.

Chart 1 shows the inflation rate and our forecast for February 2018.

The U.S. NFIB small-business confidence index strengthened to a record high of 107.6 for February from 106.9 in the previous month. The index rose 1.8% for the 12 months ending in February.

The January IIP was also boosted by a higher offtake of consumer and capital goods.

At a seasonally adjusted annual rate, the price index has gained 4.2 per cent so far this year, compared to a gain of only 3.3 per cent at the same point last year.

Analysts polled by Reuters had predicted February´s rate would ease to 4.8 percent from 5.1 percent in January.

OECD said,"Tax reductions and higher government expenditure reinforce the momentum in domestic demand from strong confidence, solid job creation, past gains in household wealth and the rebound in oil production".