US CPI inflation and retail sales seen weaker in December – Forex News PreviewPosted on January 11, 2018 at 11:51 am GMTChristina Parthenidou, XM Investment Research Desk
Raising interest rates is what the Fed is highly anticipated to do in 2018 as part of its plan to tighten monetary policy. However, the timing and the speed of the rate adjustment remains in question as long as inflation shows little sign of accelerating towards the central bank’s target.
On Friday, the Bureau of Labor Statistics will release data on consumer prices and the Census Bureau will publish figures on retail sales at 1330 GMT. Even though the former is the official inflation measure, it is not emphasized by Fed policymakers as they prefer to monitor the price inflation gauge for personal consumption expenditures (PCE), which involves a broader range of products, to decide on monetary policy. Still, investors could see CPI readings as a hint of what to expect from the PCE index due on January 29. Regarding retail sales, those could indicate whether consumer spending is strong enough to push prices higher.
In November, the CPI annual rate rose to 2.2% and jumped by 0.4% on a monthly basis as expected mainly due to higher energy prices, which grew by 9.4% over the last 12 months. For December, though, analysts predict the gauge to inch down to 2.1% y/y and ease to 0.2% m/m. Moreover, projections for the core equivalent which excludes volatile items are to remain unchanged at 1.7% y/y and rise softly to 0.2% m/m.
Retailers and especially those in the auto industry felt their sales rising faster in November as the holiday shopping season started earlier in those markets. Retail sales increased surprisingly by 0.8% m/m (seasonally adjusted), whereas analysts thought that growth in sales could come in weaker at 0.3%. Forecasts for December are smoother as well, suggesting an expansion of 0.4% m/m both for the headline and the core measure. Although yearly estimations are not provided, an early indicator of US sales trends was reported by Mastercard SpendingPulse a few days ago regarding the period from November 1 to December 24. The findings indicated that sales grew 4.9% y/y (excluding automobiles), posting the largest annual gains since 2011 and affirming the positive picture of consumer confidence supporting the buoyant US economy.
Yet, something more is needed than consumption growth for inflation to pick up as desired by policymakers and that pertains to how much Americans earn. Recent prints showed that wage growth constantly fails to take off even as the economy operates near full employment conditions. If this phenomenon persists, it would be difficult for inflation to approach the Fed’s target of 2.0%. However, hopes for the opposite remain alive given that the fresh-signed tax legislation which promises massive tax cuts for businesses and individuals is believed to encourage businesses to raise labor payments and capital spending.
In the forex markets, dollar/yen would likely take an upward direction if the data appear better than anticipated, opening the way for a retest of the 112 key-level. However, bigger positive surprises would push the currency up to break the previous top at 113.74 and potentially enter the 114 area with a scope to meet the ten-month high at 114.72.
On the flip side, if the data disappoint, dollar/yen would meet the 111 handle, while further decreases could shift focus to 110.USDJPY