Retail Sales and CPI reports for January just released. Both stocks and bonds selling off.
Consumer inflation has been benign for most of 2017. In some months consumer inflation even dropped on month over month basis. This morning CPI report shows a strong reversal to last year’s trend.
The Consumer Price Index (CPI) for January rose 0.5% month over month, exceeding economists’ forecasts of only a 0.3% rise. Year over year, CPI rose at a 2.1% annual pace.
The Core CPI, which excludes volatile food and energy components, rose 0.3% month over month and 1.8% year over year. Both exceeding economists’ forecasts.
Transportation, medical care, clothing, monthly rents, and energy prices all saw a large increase in month over month pricing which contributed to the stronger than expected report.
Today’s report confirms that inflation has some staying power and could rise in the months ahead. Though this report is not the most watched inflation metric by the Federal Reserve, that would be the Personal Consumption Expenditures Index (PCE), it does hold significant weight and factors into their interest rate decisions.
Retail Sales for January showed disappointing results. January Retail Sales actually fell -0.3% month over month mainly due to weaker auto sales.
Consumer spending accounts for two-thirds of our Gross Domestic Product (GDP) and is a key driver of inflation and growth. This report tends to be extremely volatile on month to month basis. Many economists are forecasting higher retail sales in the months to come as the tax reform bill puts more money in worker pay checks.
The 10 Year Note is currently yielding 2.87%. Before this morning’s data was released it traded as low as 2.82% but quickly reversed course after the CPI report.
The Fed was hoping for higher inflation and they are starting to see it. Their rate path trajectory of 3 to 4 hikes this year is still very much intact after this morning’s report.
Tomorrow the Producer Price Index (PPI), which measures inflation at the producer level, and Industrial Production, which gauges the health of the manufacturing sector are released. Both reports have the ability to move markets.
Just a reminder, Financial Markets are closed Monday, February 19th in observance of President’s Day. Family First Funding Lock Desk and offices will also be closed.
Thomas R. Sirico
Executive Business Director
Main: (732) 945-1005 x700
Cell: (917) 923-1472