US Market Alert: PPI and Retail Sales
- US Producer Price Index (PPI) beats estimates to the downside (-0.5% vs est. -0.1%)
- US retail sales dropped faster than anticipating in December (-1.1% vs est. -0.8%)
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Lower PPI adds Further Pressure on the Fed to Pause Hikes
US PPI data dropped more than expected in December. As the end consumer breathers a sigh of relief there was more good news to come from the data in the form of a revision of the November figure which corrected a supposed monthly price increase of 0.3% to 0.2%.
This, in what has become a long line of lower inflation (mainly CPI) prints, will certainly be up for debate at the Fed’s next FOMC meeting in February but it remains to be seen if general prices are trending low enough to meet the high bar of “compelling evidence” that the Fed has deemed appropriate before changing its monetary policy path.
Disappointing US Retail Sales Suggests a Challenging Trading Environment for 2023
At the start of earnings season for Q4, major US banks increased cash reserves in anticipation of a pick up in credit losses due to a challenging economic environment. It appears that December was challenging for consumers, resulting in retail sales declining 1.1% month on month, more than the 0.8% decline projected.
The drop was led by large declines from gasoline stations, motor vehicle and parts dealers, as well as nonstore retailers. Gas prices have been in decline for months now, contributing to a more generally observed decline in prices which has been seen via encouraging CPI data.
US Retail Sales and its Component Contributions
Source: Bloomberg , prepared by Richard Snow
Below is a further magnification of the components of the US retail sales report:
Graphic Representation of the Largest Contributors to US Retail Sales Price Declines
Source: Bloomberg, US Census Bureau, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX