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Headline US consumer price inflation (CPI) rose in line with expectations in December, but stripping out volatile measure such as energy and food, the core rate rose at its fastest since last January. "However, the subdued performance of electricity generation and the output of Coal India Limited may weigh upon the growth of mining and electricity in December 2017", added Nayar while giving an outlook going forward. "They have had a nice run since the middle of December and will need to see a continuation of inflationary pressures to sustain current levels", said Sean Simko, senior portfolio manager at SEI in Oaks, Pennsylvania.

RBI has a mandate to control retail inflation in the country in the range of 4% to 6%. The core PPI was up 2.4 percent in the 12 months through November.

US producer prices fell for the first time in almost 1-1/2 years in December amid declining costs for services, which could temper expectations that inflation will accelerate in 2018. Having raised rates three additional times last year, the central bank has forecast the same number of rate increases this year. "The uptick in the CPI inflation to a 17-month high in December 2017 validates the caution displayed by the Monetary Policy Committee (MPC) in its recent reviews", said Aditi Nayar, principal economist of Icra.

"It supports our view that the Fed will ultimately increase interest rates by a more aggressive 100 basis points cumulatively this year", said Paul Ashworth, chief US economist at Capital Economics in Toronto.

In addition, low energy prices seen in the final month of the year are unlikely to be sustained, economists say.

The broadest gauge of inflation showed a slowdown in December, rising 2.1% compared to 2016, as expected, which was slightly down from November's 2.2% result, said data from the Bureau of Labour Statistics on Friday.

Last month, gasoline prices fell 2.7 percent after rebounding 7.3 percent in November. The statistical impact of an unfavorable base also rose the year-on-year print.

Meanwhile, despite reports of healthy sales from some stores during the holiday shopping season, department store sales declined 1.1 percent from the prior month, while sporting goods stores fell 1.6 percent.

Last month's increase in retail sales and the sharp upward revision to November data bolsters economists' expectations of data showing an acceleration in consumer spending in the fourth quarter.

The 10-year breakeven rate ended marginally higher on the day at 2.02 percent in advance of next week's $13 billion of 10-year TIPS supply.

In a major improvement, fifteen out of the twenty three industry groups in the manufacturing sector showed positive growth in November 2017.