There were two important reports on the U.S. economy released this morning. First, household inflation pressures in America continued to firm last month, according to new data from the Bureau of Labor Statistics (BLS). Specifically, the consumer price index (CPI) for all urban consumers jumped by 0.5 percent in January. That was the biggest monthly gain since 2013 and much larger than economists expected. Core CPI, which excludes the volatile food and energy components, also rose by more than forecast last month (+0.3 percent). Notable gains were seen in the prices of rent, medical care, and automobile insurance in January, although most of the sharp headline increase was due to apparel costs rising by the most in almost three decades. Altogether, these figures will continue to raise investors’ concerns that the Federal Reserve will hike interest rates faster than anticipated, and both stocks and bonds sold off in a knee-jerk reaction to the CPI report. Two more inflation gauges for February, though, have yet to be released, along with many other important economic reports that could influence monetary policymakers before the March Federal Open Market Committee (FOMC) meeting.
Elsewhere, a report from the U.S. Census Bureau showed that advance estimates of retail and food services sales in January totaled $492.0 billion. That was a 0.3 percent decrease from December’s downward-revised print, the largest monthly drop in roughly a year, and significantly worse than expected. Core retail sales (ex-autos and gasoline) also declined last month (-0.2 percent), with weakness spread across most major retail categories. Some pullback in consumer spending should not be too surprising, though, since Americans have already been tapping heavily into their personal savings and credit cards to fuel consumption recently. Regardless, consumer spending accounts for the bulk of U.S. gross domestic product (GDP), so some economists will now fear that 2018 will continue to follow the recent pattern of weak Q1 growth. However, this is only one month of data, and there is still plenty of time left for a potential rebound, especially with help from the strong labor market, rising wages, and recent tax cuts.
Sources: U.S. DoL, U.S. Census Bureau, Bloomberg, FRBSLPost author: Charles Couch