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INSTANT VIEW: U.S. consumer prices rise, housing starts tumble

U.S. consumer prices rose more than expected in October, chiefly from increases in energy and motor vehicle costs, according to government data on Wednesday that showed the economy may have to confront some inflation threats during its recovery from the worst recession in 70 years.
/ Source: Reuters

U.S. consumer prices rose more than expected in October, chiefly from increases in energy and motor vehicle costs, according to government data on Wednesday that showed the economy may have to confront some inflation threats during its recovery from the worst recession in 70 years.

New U.S. housing starts in October unexpectedly fell to their lowest level in six months, weighed down by a sharp decline in construction activity for both single-family and multi-family dwellings, a government report showed on Wednesday.

KEY POINTS:

CPI * The Labor Department said its Consumer Price Index jumped 0.3 percent on a seasonally adjusted basis -- more than the 0.2 percent increase analysts polled by Reuters had anticipated -- after rising an unrevised 0.2 percent in September. * Core prices, which exclude food and energy, rose a more moderate 0.2 percent. * A spike in prices on used cars and trucks and new vehicles accounted for more than 90 percent of the rise in core prices, the department said. It was the biggest increase in new vehicle prices since 1981.

HOUSING * The Commerce Department said housing starts dropped 10.6 percent to a seasonally adjusted annual rate of 529,000 units, the lowest level since April and the percentage drop was the biggest since January. * Analysts polled by Reuters had expected housing starts to rise to 600,000 units. September's housing starts were revised upwards to 592,000 units from the previously reported 590,000 units. * Groundbreaking for single-family homes fell 6.8 percent last month to an annual rate of 476,000 units, the lowest since May. Starts for the volatile multifamily segment tumbled 34.6 percent to a 53,000 annual pace, extending the previous month's slump.

COMMENTS:

DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST, CHANNEL CAPITAL

RESEARCH.COM, SHREWSBURY, NEW JERSEY: CPI: "It's a little ahead of schedule but it's really not significant ... it's not huge inflationary pressures.

"Given the economic situation, the Fed's not going to tighten, this is not going to change their tightening bias.

"You might have a little controversy with some of the inflation hawks starting to say we need to start watching it, but it's very difficult to significantly tighten monetary policy when you have 10.2 percent unemployment."

STUART HOFFMAN, CHIEF ECONOMIST, PNC FINANCIAL SERVICES GROUP,

PITTSBURGH:

"Builders are still quite cautious. They've got a lot of homes that are finished and can't be sold, they're having trouble of course getting financing. The housing market has definitely come off the bottom, but it's not a straight up recovery. Two steps forward and one step back, and this was a big step back for housing."

CPI: "There's a whiff of inflation in that number and frankly it smells a lot like gasoline. Also, a bit higher auto prices although I don't think that can last. Often when you introduce the new model year cars and trucks they come with slightly higher price tags, but let's face it in this environment the discounting on vehicles is still quite extensive.

"Year-over-year the CPI is minus 0.3 but it's about to go positive and it reminds us that the drop in the CPI from a year ago was really a one-trick pony. It was mainly the drop in gasoline prices, and now that that's faded away and gasoline is rising in this quarter compared to dropping like a stone in the final quarter of last year in the midst of the worst part of the recession, inflation is going to come back positive again."

TODD SCHOENBERGER, MANAGING DIRECTOR, LANDCOLT TRADING, SAN

ANTONIO:

"The decrease in housing starts and mortgage applications should be seen as a bearish sign for the markets and the economy. The recently released sentiment numbers should be considered a more valid proxy of how fragile the U.S. economy is, rather than the faux optimism brought on by the run-up in stocks. Considering that Congress passed an extension for the housing tax credit, would-be buyers are simply dropping out of the market -- regardless of any wealth effect taking place by the performance in the markets."

TOM SOWANICK, CHIEF INVESTMENT OFFICER, OMNIVEST GROUP,

PRINCETON, NEW JERSEY:

"Inflation is not going away. There are a lot of people who side on the argument that deflation is the bigger risk. But excluding food and energy, core prices were up 1.7 percent -- which is not a lot but greater than expectations. Housing starts were weaker than expected but the three-month average is holding up. The change in the housing figures is multi families, which plunged 35 percent. That was the biggest drag to the housing figures. Everyone is watching the dollar today. It has been beaten up pretty badly in recognition that China has the upperhand even after President Obama's meeting with them. They've signaled that one day its currency will appreciate, but not today."

AMELIA BOURDEAU, SENIOR CURRENCY STRATEGIST, UBS, STAMFORD,

CONNECTICUT:

"The mix of the data -- slightly higher inflation and disappointing housing starts and building permits -- is somewhat unfriendly for the risk-seeking trade and we're seeing some dollar strength as a knee-jerk reaction. What moved the market, I think, was the weak housing starts. We're not worried so much about inflation. Overall, it's still benign because the year-over-year figure was still negative."

JOHN DOYLE, FOREIGN EXCHANGE STRATEGIST, TEMPUS CONSULTING,

WASHINGTON:

"The data came as a mixed bag. Obviously the housing starts number is a very poor number and the CPI registered slightly better than expected. The dollar is strengthening slightly this morning on these numbers and that's probably due to the housing numbers being much worse than expected. The CPI number came out slightly better than expected, but overall pretty in line with expectations."

DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES INTERNATIONAL,

NEW YORK:

"Our quick read of (CPI) is that it is reflecting -- especially the core rate -- most of the increase there was due to a jump in new and used vehicle prices. Those were a by product of the end of the cash for clunkers program and a shift in the mix of cars purchased in October. In September more of the sales had been in the somewhat lower priced models.

"Housing starts were really disappointing. We had an above-consensus guess on housing starts. I had convinced myself that we had turned the corner on housing -- I am no longer convinced. This is really a quite weak number."

TOM PORCELLI, SENIOR ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:

HOUSING STARTS: "It's a pretty sizable decline. There was weakness in single-family as well as multi-family activity. Single-family matters more to the GDP so that's worrisome."

"Builders shouldn't get too far ahead of themselves because they are still sitting on a lot of inventories. The NAHB index yesterday bears this out to some extent."

CPI; "It's more of soft 0.2 percent increase on the core. There's very little cost pass-throughs. Inflation is utterly tame."

DAN COOK, SENIOR MARKET ANALYST, IG MARKETS, CHICAGO:

"CPI came in about as expected with a month-over-month kick up of 0.1 percent. That won't have much of an impact on the market. From the initial number, it doesn't look like a big deal.

"The housing starts look bad and its going to put quite a bit of pressure on the market, especially after the run-up we've had. This is going to be a good time for investors to take profits.

"The trickle-down effect of the housing number is going to be amazing. It's likely that more construction crews will get cut after this, and the supplier who supply those crews will be hurt as well. This is not good news at all."

MARKET REACTION: STOCKS: U.S. stock index futures turn negative BONDS: U.S. Treasury debt prices extend losses DOLLAR: U.S. dollar gains versus euro