US inflation creeping up, housing sales rise

July 23, 2014 - 1:40:38 am

WASHINGTON: US home resales hit an eight month-high in June, suggesting the housing market was gradually regaining momentum and would help the economy to stay on a higher growth path this year.

The third straight month of home sales gains, reported by the National Association of Realtors yesterday, added to employment and retail sales data that have indicated economic growth ended the second quarter on a firmer note. A separate report showed inflation moving slightly higher.

“The economy is normalising from whatever went wrong in the first quarter. Growth is up and running,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. Existing home sales rose 2.6 percent to an annual rate of 5.04 million units last month, with the median house price hitting its highest level since 2007.

The housing market stumbled in the second half of last year, raising concerns it could undermine the economy’s recovery. Now, its rebound is bolstering forecasts for stronger growth.

Growth is expected to have accelerated to above a 3 percent annual rate in the second quarter and is forecast maintaining an even stronger pace for the rest of the year. 

Housing had been stymied by higher interest rates, a shortage of properties for sale and slow wage growth. With the labour market tightening, mortgage rates easing and the pace of house price increases moderating as supply improves, the foundation is being laid for further gains in home sales.

“We may see a late season summer push in housing activity.  Inventory is picking up and mortgage rates are hovering around lows for the year, which make things a bit easier for first-time buyers,” said Nela Richardson, chief economist at Redfin.

US homebuilder stocks rose on the data, with the Dow Jones index for home construction up about 1.5 percent at mid-day.

A second report from the Labour Department showed a surge in gasoline prices pushed up inflation in June, but the underlying trend remained consistent with only a slow and modest build-up of inflationary pressures.

The Consumer Price Index increased 0.3 percent last month, with gasoline accounting for two-thirds of the gain, after May’s 0.4 percent rise. In the 12 months through June, the CPI was up 2.1 percent, the same as in May.

The rise is a welcome development for some Federal Reserve officials who had worried that price pressures were too low.

While a separate inflation gauge watched by the Fed is running below the US central bank’s 2 percent target, some economists believe it will start bumping against that level later this year as an acceleration in job growth lifts wages. Reuters