Retail Inflation hits 17-month high, rises to 5.21% in December 2017

CPI increase accelerates retail inflation to a 17-month high

Driven by rising food prices and higher payout for Government employees, December month's retail inflation soared above the central bank's inflation target to 5.21 per cent as food items are set to become more expensive.

If it's here to stay the Fed will not raise interest rates too high and may stop raising them altogether quite soon; if not it will probably continue raising them for quite some time, and raise them to a higher endpoint level - or terminal rate as it's called.

The pickup in the core CPI data may help reinforce expectations that the Fed is making progress on stable inflation, one of its twin goals along with maximum employment.

Core inflation, which excludes volatile food and energy prices, rose by 0.3 December from the prior month - its biggest monthly gain in 11 months - and by 1.8 percent compared to December 2016. That was the first drop in the PPI since August 2016 and followed two straight monthly increases of 0.4 percent.

The headline rate, which rose at a softer-than-expected 0.1% monthly rate to an annual pace of 2.1%, was held back in December by a 2.7% fall in petrol prices.

Most of the pressure here in December's inflation was tied to housing and medical costs.

"We've been seeing stronger gains in core inflation, and I think there are good reasons to expect core inflation will be stronger this year as well", said Michael Pearce, senior USA economist at Capital Economics.

The U.S. central bank's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has undershot its target since May 2012.

Analysts polled by Reuters had predicted December's consumer inflation rate would climb to 5.10%, the highest since July 2016, from 4.88% in November. The cost of both hospital and doctor visits increased 0.3 percent. Core CPI increased 1.8% in the 12 months to the end of December, picking up from 1.7% in November.

Meanwhile, used auto and truck prices jumped 1.4% in the month, while new vehicle prices gained 0.6%. Apparel prices, however, fell 0.5%. Mining output grew at 1.1 per cent in November, sharply down from 8.1 per cent last year, while electricity recorded a growth of 3.9 per cent against 9.5 per cent a year ago. Cheaper petrol prices limited the increase in the overall CPI to 0.1% in December after climbing 0.4% in November. It revised November data to show a gain of 0.9 per cent instead of the previously reported 0.8 per cent increase.