United States Consumer Prices Rise 0.2%

The Bureau of Labor Statistics reported the United States (U.S.) consumer price index (C.P.I.) for all goods increased a seasonally adjusted 0.2% in the month of January. This is only the second appreciation in four months. The C.P.I. measures the change in prices urban consumers pay for goods and services. Considering the last 12 months through January 2012 the index increased 2.9% (unadjusted), lower from the 12 months ending December 2011 at 3.0%. Furthermore, the year average through January for energy rose 6.1%, food increased 4.4%, and all else (core goods/services; all items excluding food and energy) appreciated 2.3%. The core’s increase is the highest seen since September 2008.

Retailers are fearful about charging more as many had used large-discount tactics to encourage buying behavior. Much of this was realized through increased consumer purchases.

The Federal Reserve expressed their intention to maintain the established benchmark interest rate pending inflation is contained. The current interest rate sits at a near zero record low. As a minimal amount of inflation may be viewed as healthful to the economy, drastic increases in inflation would spur action by the Fed to raise interest rates. Yet, the Fed forecasts inflation will remain within targeted levels (2.0% for 2012) and projects there will be a 1.6% increase in this year.

With the U.S. Fed keeping interest rates low until late 2014, the Bank of Japan Governor Shirakwa announced that the BOJ will continue to remain dovish. The BOJ has recently expanded the asset purchase program by 10 trillion Yen. With such bold moves from the BOJ, the USDJPY has seen strong buying pressure and the pair has been pushed above 79.00. This is the first time in the last six months that the pair has traded above 79.00 without direct intervention. There is significant test of resistance at 79.00 and if the USDJPY trades above that level, we expect the pair to target 81.00.

Eugene Ross, Analyst

Admiral Markets

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