Consumer Prices Tame, Home Starts Cool: U.S. Economic Takeaways

  • Goods keep getting cheaper, prices of consumer services slow
  • Beginning home construction falls, one-family permits climb

What you need to know about Wednesday’s U.S. economic data:


  • Fell 0.1 percent (no change forecast); rose 0.7 percent from year earlier
  • Core CPI, or minus food and energy, climbed 0.1 percent (up 0.2 percent forecast); increased 2.1 percent from December 2014 (most since July 2012)
  • Services prices rose 0.1 percent, and 2.5 percent from December 2014
  • Cost of goods declined 0.6 percent, and 2.1 percent from year earlier

The Takeaway: A firm U.S. dollar that is depressing the cost of imports is keeping downward pressure on the prices of goods. While the cost of services is holding up, price gains were steady in December compared with the prior month. Airfares and hotel room rates fell from the prior month and rents failed to accelerate. Federal Reserve officials are betting that a broader acceleration in prices and waning of the “transitory” drag from energy will allow them to raise the benchmark interest rate further as planned this year. “The gradually rising trend in the core matters more to the Fed,” according to Ian Shepherdson of Pantheon Macroeconomics. What’s more, year-over-year inflation rates will probably perk up in coming months “as the base effects of past energy price declines and dollar appreciation fade,” Rob Martin at Barclays wrote in a note to clients.


  • Starts fell 2.5 percent to 1.15 million annual rate (forecast 1.2 million)
  • Building permits dropped 3.9 percent to 1.23 million pace
  • Applications for single-family home construction rose to an eight-year high of 740,000
  • Number of homes authorized for construction rose to 150,000, most since June

The Takeaway: The drop in new-home construction, which probably reflects little more than a pause in a steady uptrend, closed out the strongest year for housing starts since 2007. Last year, home starts rose 10.8 percent to 1.11 million. The rise in permits for the building of one-family dwellings makes for a more encouraging outlook. Millan Mulraine of TD Securities LLC is one economist who said drivers of demand remain favorable, and building activity may rebound in coming months. While the decline in total starts appears at odds with the recent surge in construction employment (up 128,000 in 4Q), the report showed 981,000 homes in December were in the process of being built, the most since May 2008, and the backlog of dwellings not yet started increased.

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