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US homes market weakens while consumer prices rise

WASHINGTON – PERMITS to break new ground on US homes last month dipped 3 per cent to the lowest rate in more than 16 years while housing starts rose 0.8 per cent, showing signs of more struggles ahead for the homes market.

Consumer prices in the United States also rose for a second straight month in January.

Permits slipped to a 1.048 million annual rate, the weakest showing since 984,000 in November 1991. Analysts were expecting this key indicator of builder confidence in future housing activity to drop to 1.04 million.

Housing starts rose to a 1.012 million annual rate, but it was only a slight rebound from the revised 1.004 million pace in December, which was the lowest pace for starts since May 1991.

‘Housing continues to be an area that will act as a drag on the economy going forward, so no surprises there,’ said Mr Kevin Flanagan, fixed income strategist for Global Wealth Management at Morgan Stanley.

Rising food costs helped push US consumer prices up for a second straight month in January, by 0.4 per cent – more than offsetting a moderation in energy price rises as inflation showed signs of gaining steam, according to a Labour Department report yesterday.

The consumer price index, (CPI) the most broadly used gauge of inflation, has climbed 4.3 per cent since January last year.

More significantly, so-called core prices, which exclude food and energy items, rose 0.3 per cent last month, the strongest monthly rise since June 2006, after gaining 0.2 per cent in December.

Analysts said the rising prices at the same time that economic growth was slowing makes it more difficult for the US central bank to keep cutting interest rates. ‘This is going to raise the flag on the inflation front, but it’s not going to take away any of the front-end action from the Fed to support growth,’ said Ms Lindsey Piegza, a market analyst with FTN Financial.

The US dollar’s value rose against other major currencies as investors bet the stronger-than-forecast CPI number meant the Federal Reserve was less likely to cut interest rates aggressively. Prices for US Treasury debt securities and stock index futures also weakened.

The Labour Department said energy prices rose 0.7 per cent last month. But food costs jumped 0.7 per cent in January after rising a scant 0.1 per cent in December.

Source: REUTERS (The Straits Times 21 Feb 08)

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