Retail Sales and Inflation

The stock market was closed on Friday for Good Friday but there were two important economic reports I want to highlight.

The first is that the Commerce Department said that retail sales fell by 0.2% last month. That comes on the heels of a 0.3% drop in February. Economists had been expecting a drop of 0.1%.

We also want to look at “core” retail sales which ignores cars and gasoline. That’s usually the best measure of consumer spending. Last month, core retail sales rose by 0.5%. The Atlanta Fed now sees Q1 GDP growth of 0.9%.

But the big surprise was the CPI report. The Labor Department said that consumer prices dropped by 0.3% last month. That was the biggest drop in more than two years.

The core rate, which excludes food and energy, fell by 0.1%. That’s the biggest monthly fall since 1982.

I said in last week’s newsletter that it would be a big mistake for the Fed to raise interest rates in June. I specifically said that inflation is not a problem. That was just prior to these reports, and it confirms that I was more accurate than I suspected.

The futures market is currently about 50-50 on a June hike.

Posted by on April 17th, 2017 at 10:52 am


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