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Instant View 3-U.S. March CPI and housing starts

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04-17-2007

NEW YORK (Reuters)

The Consumer Price Index climbed at a 0.6 percent rate in March, up from 0.4 percent in February, the Labor Department said on Tuesday. It was the largest monthly increase since a matching 0.6 percent rise last April.

But excluding food and energy, consumer prices edged up by a slim 0.1 percent in March following increases of 0.2 percent in February and 0.3 percent in January. Wall Street economists had forecast that overall consumer prices would gain 0.6 percent and that core prices would be up by a slightly larger 0.2 percent.

- The Commerce Department said housing starts set an annual pace of 1.518 million units in March compared with a 1.506 million unit pace in February. Economists had forecast March housing starts to drop to a 1.495 million unit pace from February's originally reported 1.525 million units.

COMMENTARY:

BRIAN GENDREAU, INVESTMENT STRATEGIST, ING INVESTMENT

MANAGEMENT, NEW YORK:

"These are very positive elements, I wouldn't at all be surprised if the stock market responds well. It doesn't mean a Fed rate cut is imminent, but a few more reports like these, and it means the Fed is near achieving its goal. Meanwhile, housing starts came in better than expected. The news is all coming in on the good side and the climate is looking much better for stocks than people had feared. There had been a lot of pessimism priced in."

JOE SALUZZI, CO-MANAGER TRADING, THEMIS TRADING, CHATHAM, NEW

JERSEY:

"The reaction we're getting this morning is very positive, so that tells you people were looking for something worse ... The big overhanging fear on the market had been interest rates and how fast they would cut, and even some people saying maybe later in the year you would get a raise. This type of number takes this feeling out of there. It gives you a comfort feeling on inflation, at this point it's really very well contained."

HUGH BROMMA, CEO ENTRUST GROUP, RENO, NEV.:

Housing starts: "This is just a minor change because we have to look at the overall trend from last year. I think we can continue to look at changes which will be decreasing relative to previous years' numbers.

"We're still not at the 40-year high or average of the new housing starts as it is. Although this (latest report) is optimistic in the near term, I think in the longer-term we're going to see the correction continue.

"We need to wait another three months to see where the market is headed."

RICHARD DEKASER, CHIEF ECONOMIST, NATIONAL CITY CORP.,

CLEVELAND:

Housing starts: "We have stabilized. Starts are the leading edge of housing activities.

"Permits are not as afflicted by weather conditions. When you look at all of this, housing construction will continue to decline this year but at a slower pace than the last 12 months."

CPI: "This is unambiguously good news. If you look at core inflation, there's a lot of good news there like medical expenses.

"We still have owners' equivalent rents which are still showing pretty hefty increases. That continues to present a lingering concern.

"The market will look at this and find comfort in this report. This takes a little pressure off the Fed."

Real earnings: "They are heavily influenced by energy prices. I wouldn't be terribly concerned. We can see that real earnings are growing but at an irregular path."

GARY THAYER, CHIEF ECONOMIST, A.G. EDWARDS AND SONS, ST. LOUIS,

MISSOURI:

"The good news on core inflation is what moved the bond market higher today. We're seeing core inflation start to move down. It's still above the Fed's comfort zone of 1 to 2 percent, but we're moving down toward that range now. Core inflation was only 2.45 percent in the year ended March compared to 2.71 percent in the twelve months ended February. We might begin to see expectations for a Fed rate cut come back into the market. The slow economy, particularly the housing market, may be having the desired impact of moderating inflation."

WARREN WEST, HEAD TRADER, GREENTREE BROKERAGE SERVICES INC.,

PHILADELPHIA:

"I don't think anyone is disappointed with it (CPI). The (stock) market has been strong of late. We are just continuing that. A lot of people missed this rally with a lot of money on the sidelines. Now we are starting to get a little more clarity and people are responding to that. We know we have a little more inflation than the Fed is comfortable with but how much is always the question.

"The market liked what it saw."

DAVID SLOAN, SENIOR ECONOMIST, 4CAST LTD, NEW YORK:

"The CPI was encouraging. We saw slightly disappointing core CPI numbers in January and February and I think this is a correction, which means the trend is fairly stable."

"The housing starts is a very small increase in both starts and permits -- the housing sector may be finding a base but it is not in strong recovery."

KEITH HEMBRE, CHIEF ECONOMIST, FAF ADVISORS, MINNEAPOLIS:

"It's a great CPI report regarding the core number. The large increases came from medical numbers in January and February; they washed out in March.

"Housing continues to be elevated but owners' equivalent rents should be coming down. We should be in pretty good shape with core inflation coming downward.

"This is a report that the Fed wants to see."

MARKET REACTION: - U.S. Treasury debt prices rise after milder-than-expected core CPI rise in March. - Dollar falls after U.S. March core CPI rises by less than expected. - U.S. stock futures cut losses, turn flat after CPI, housing data. - U.S. rate futures rise on smaller-than-expected March core CPI.