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166 matches for " gasoline":
No matter how you choose to slice-and-dice the recent retail sales numbers, the core data for the past couple of months have been disappointing. Our favorite measure--total sales less autos, gasoline, food and building materials--rose by just 0.1% month-to- month in May but then reversed this minimal gain in June.
Retail sales have lost steam over the past couple of months, even if you look through the headline gyrations triggered by swings in auto sales and gasoline prices.
So far, the surge in retail spending promised by the plunge in gasoline prices has not materialized. The latest Redbook chain store sales numbers dipped below the gently rising trend last week, perhaps because of severe weather, but the point is that the holiday season burst of spending has not been maintained.
Whichever way you choose to slice the numbers, retail sales growth has slowed this year. Ex-gasoline, ex-autos, core, whatever, sales growth in year-over-year terms is notably weaker now than at the end of last year. It is equally, true, however, that after-tax incomes have risen at a robust pace--up 3.8% in the year to May, exactly the same pace as in the year to May 2014--so consumers in aggregate have plenty of cash to spend. So, what's holding people back at the mall? Why aren't they spending more?
Higher gasoline prices will lift today's headline October CPI, which should rise by 0.3%. Unfavorable rounding could easily push it to 0.4%, though, and year-over-year headline inflation should rise to 1.6% or 1.7%, from 1.5% in September and just 0.2% a year ago.
The expectations components of both the Michigan and Conference Board measures of consumers' confidence have risen sharply since gasoline prices rolled over.
The jump in oil prices over the past two trading days eventually will lift retail gasoline prices by about 35 cents per gallon, or 131⁄2%.
The surge in gasoline prices triggered by refinery outages after Hurricane Harvey came much too late to push up the August PPI, but gas prices had risen before the storm so the headline PPI will be stronger than the core.
Retail sales ex-autos have undershot consensus forecasts in eight of the 11 reports released so far this year, prompting interest rate doves to argue that consumers have not spent their windfall from falling gas prices. But this ignores the impact of falling prices--for gasoline, electronics, furniture, and clothing--on the sales numbers, which are presented in nominal terms.
The headline April CPI, due today, will be boosted slightly by rising gasoline prices.
If we are right in our view that the lag between shifts in gasoline prices and the response from consumers is about six months--longer than markets seem to think--then the next few months should see spending surge.
Take at look at the chart below, which shows core retail sales on a month-to-month and year-over-year basis. What's most striking about the chart is not the latest data, showing robust 0.8% gains in core sales--we exclude autos, gasoline and food--in both October and November, but the solidity of the trend since the winter.
You might remember that the December retail sales report surprised significantly to the downside, thanks to the impact of falling gasoline prices. The data are reported in nominal dollars, not volumes, so falling prices depress the numbers.
We have argued for some time that market disappointment over the recent sluggishness of consumption has been misplaced. In our view, investors have placed too little weight on the impact of the severe winter, and have been too hasty in looking for the impact of the drop in gasoline sales.
We pointed out in yesterday's Monitor that Fed Chair Yellen appears to be putting a good deal of faith in the idea that the recent upturn in core inflation is temporary. She argued that "some" of the increase reflects "unusually high readings in categories that tend to be quite volatile without very much significance for inflation over time".
Under normal circumstances, the boost to consumption from the astonishing collapse in oil prices would act as a substantial--though not complete--offset to the hit to capital spending in the shale business.
Inflation pressures in Brazil and Mexico are well under control, with the August mid-month readings falling more than expected, strengthening the case for the BCB and Banxico to cut interest rates in the near term.
Banxico's tightening cycle has totalled 400 basis points, lifting rates to 7.0%. Since late 2015, Banxico has followed the Fed closely, but other external factors also have guided many of its decisions.
Oil prices have risen by about $20 per barrel since last fall.
Data released on Monday confirmed that the Colombian economy slowed in August, following a solid rebound since mid Q2.
As we reach our Sunday afternoon deadline, no deal has been reached to re-open the federal government.
With Fed officials now in pre-FOMC meeting blackout mode, this week will not bring a repeat of Friday's confusion, when the New York Fed felt obligated to issue a clarification following president William's speech on monetary policy close to the zero bound.
The sharp decline in Mexico's leading indicators highlights the dramatic scale of the economic and financial hit from the coronavirus. High frequency data and the PMIs are the first numbers to capture the lockdown, and they signal that the services activity-- the bulk of Mexico's GDP--dropped sharply.
Inflation in Mexico surprised to the upside in early Q3, but we still believe it will fall gradually in Q4.
Mexican policymakers likely will stick to the script tomorrow and vote by a majority to cut the main rate by 50bp to 5.00%, which would be its lowest level since late 2016.
Broad-based inflation pressures in Brazil remain tame despite the sharp BRL depreciation this year, totalling about 7% in the last three months alone.
Brazil's inflation rate remained well under control over the first half of February.
Brazilian inflation is off to a bad start this year, but January's jump is not the start of an uptrend, and we think good news is coming.
If, like us, you have been cheered by the upturn in mortgage applications since November, you don't need to worry about the apparent drop in activity in the past couple of weeks. The numbers don't look great: The MBA's index capturing the number of applications for new mortgages to finance house purchase has dropped from a peak of 237.7 in the third week of January--ignoring September's spike, which was triggered by a regulatory change--to 213.3 last week.
The rate of growth of new coronavirus infections across Europe slowed yesterday, in some cases quite markedly. We can quibble about the reliability of the data in individual countries, given variations in testing regimes, but the picture is strikingly uniform.
It's hard to read the minutes of the April 30/May 1 FOMC meeting as anything other than a statement of the Fed's intent to do nothing for some time yet.
We have been puzzled in recent months by the sudden and substantial divergence between the Redbook chainstore sales numbers and the official data.
Friday's inflation data in Brazil confirmed that the ripples from the truckers' strike in May were still being felt at the start of the third quarter.
Here's something we didn't expect to write: The control measure of retail sales in May was slightly higher than in February.
The September core CPI was held down by prescription drug prices, which fell by 0.6%, and vehicle prices, which fell by 0.4%.
We aren't going to pretend for a minute that the manufacturing sector is anything other than weak, but the 0.5% drop in output in August--the worst month since January 2014--hugely overstates the extent of industry's struggles. All the decline was due to a 6.4% plunge in auto output, but a glance at the recent path of production in this sector makes it very clear that its short-term swings aren't to be taken seriously. Auto production fell by 4.5% in June, rocketed by 10.6% in July, and then dropped sharply in August.
The plunge in gas prices since their peak last summer likely will exert modest downward pressure on core inflation by the end of this year, via reduced costs of production and distribution, but it probably is too soon to start looking for these effects now.
All the key measures of retail sales have returned to the trends in place before the Covid pandemic, thanks to the enhanced unemployment benefits paid to people who lost their jobs during lockdowns, and the one-time stimulus payments under the CARES Act.
The headline retail sales numbers for October looked good, but the details were less comforting.
The most important retail sales report of the year, for December, won't be published today, unless some overnight miracle means that the government has re-opened.
The weekly initial jobless claims numbers have been a useful proxy for the real-time performance of the economy since Covid-19 struck.
The two marquee economic reports today, covering May retail sales and industrial production, will capture the initial rebound after the economy hit bottom sometime in mid-April.
Fed Chair Powell's semi-annual Monetary Policy Testimony today will likely re-affirm that policymakers still think "gradual" rate hikes are appropriate and that the risks to the economy remain "roughly balanced".
Headline retail sales in June were just 1% below their January peak, and about 3% below the level they would have reached if the pre-Covid trend had continued.
Housing rents account for some 41% of the core CPI and 18% of the core PCE, making them hugely important determinants of the core inflation rate.
Evidence of weakening momentum in the economic recovery in Colombia was seen last week, alongside its regional peers and some DM economies. Low inflation, low interest rates, and the ongoing boost from a decent fiscal stimulus, all have supported the upturn since mid-Q2.
Colombian policymakers on Friday cut the reference rate by 50bp, for a third straight month, to 2.75%.
The chainstore sales numbers have been hard to read over the past year.
Today brings a raft of January data on both economic activity and prices, but we expect the headline numbers in each report to be distorted by the impact of severe weather or the plunge in oil prices.
Incoming data continue to highlight the severe hit from the pandemic on the real economies of the region, but some surveys and leading indicators are already pointing to a gradual upturn from June onwards.
The minutes of the Banxico's monetary policy meeting on February 7, when the board unanimously voted to keep the reference rate on hold at 8.25%, were consistent with the post-meeting statement.
Economic and financial conditions continue to deteriorate sharply in LatAm.
Data released in recent days are confirming the story of a struggling economy and falling inflation pressures in Mexico, strengthening our base case of interest rate cuts over the second half of the year.
If you need more evidence that the U.S. economy is bifurcating, look at the spread between the ISM non- manufacturing and manufacturing indexes, which has risen to 3.5 points, the widest gap since September 2016.
Our below-consensus 125K forecast for today's February payroll number is predicated on two ideas.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
As recently as late 2008, the share of employee compensation in GDP was slightly higher than the average for the previous 20 years. But it would be wrong to argue, therefore, that the squeeze on labor is a phenomenon only of the past few years. It's certainly true that labor's share dropped precipitously from 2009 through 2011, and has risen only marginally since then.
The delay in the processing of personal income tax refunds this year appears not to have had any adverse impact on retail sales, so far. Indeed, the Redbook chainstore sales survey suggests that sales have accelerated over the past few weeks.
Mexico's trade balance shrank slightly last year, to USD11B, from USD13B in 2016. The main driver was a big swing in the non- energy balance, to a record USD8.0B surplus, following a USD0.4B deficit in 2016.
Consumption remains an important source of economic growth in LatAm.
It's hard to overstate the geopolitical importance of Friday's assassination of Qassim Soleimani, architect of Iran's external military activity for more than 20 years and perhaps the most powerful man in the country, after the Supreme Leader.
The only way to read the December NFIB survey and not be alarmed is to look at the headline, which fell by less than expected, and ignore the details.
The recent softening in the ISM employment indexes failed to make itself felt in the June payroll numbers, which sailed on serenely even as tariff-induced chaos intensified at the industry and company level.
Brazil's retail sector has shrugged off the Covid- related shock and leading indicators suggest that activity will continue to improve over the next few months.
Inflation in most economies in LatAm is well under control, allowing central banks to keep a neutral or dovish bias, and giving them room for further rate cuts if the economic recovery falters in the near term.
Inventories subtracted 1.3 percentage points from headline GDP growth in the second quarter and were by far the biggest constraint on the economy. This was the fifth straight drag from inventories, but it was more than twice the average hit over the previous year.
China's official, unadjusted trade data for October grabbed the headlines, as they look great at first glance.
News on Mr. Bolsonaro's economic plans and announcements on key names for his government this week are helping the currency and easing risks perception in Brazil.
The coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
Three of the big LatAm economies-- Brazil, Colombia and Chile--released October inflation last week; the data are still showing the pass-through effects of currency depreciation during the first half of the year into prices, though, at different degrees. LatAm currencies have been hit by the weakness in commodity prices and negative sentiment towards EM generally.
The stock market loved Fed Chair Powell's remarks on the economy yesterday, specifically, his comment that rates are now "just below" neutral.
The advance international trade data for December were due for publication today, but the report probably won't appear.
Mexican policymakers yesterday voted unanimously to cut the policy rate by 50bp to 5.00%, the lowest level since late 2016.
We are not concerned by the slowdown in retail sales over the past few months.
Inflation in Mexico surprised to the upside in April, but the underlying picture has improved rapidly over recent months.
Two key reports today, on January consumer prices and durable goods orders, have the power to move markets substantially. We think both will undershoot market expectations, though we would be deeply reluctant to read too much into either report; both are distorted by temporary factors.
According to Brazil's mid-August inflation reading, which is a preview of the IPCA index, overall inflation pressures are easing. But some price stickiness remains, due to inertia and temporary shocks, despite the severity of the recession and the rapid deterioration of the labour market in recent months.
Inflation in the biggest economies in the region remains close to cyclical lows, but it has taken divergent paths in November, allowing Banxico to ease even further over the next few months.
Rising inflation is pressuring some LatAm central banks to take a cautious stance at a time when growth is subpar, particularly in the two biggest economies of the region.
Inflation pressures in Brazil are well under control, with the August mid-month reading falling more than expected, allowing the BCB to cut interest rates in the near term if needed.
The closer we look at the startling surge in imports in the fourth quarter, the more convinced we become that it was due in large part to a burst of inventory replacement following the late summer hurricanes.
Data released on Friday in Brazil and recent political events helped to open the door further to a final rate cut in August. The IPCA-15--which previews the full CPI-- rose 0.3% month-to-month in July, well below market expectations, 0.5%.
Mexican economic data was surprisingly benign last week.
Recent economic data in Brazil, along with recent messages from the BCB, have supported our view that interest rates will remain on hold for the foreseeable future.
Inflation in Brazil remained subdued at the start of the second quarter, strengthening the odds for an additional interest rate cut next month, and opening the door for further stimulus in June.
The last time oil prices fell sharply, from mid-2014, when WTI peaked at $107, through early 2016, when the price reached just $26, the U.S. economy slowed dramatically.
Don't be alarmed by the second straight jump in consumers' inflation expectations, captured by the Conference Board's May survey, reported yesterday.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
Data released yesterday in Brazil support our base case that the IPCA inflation rate will remain relatively stable over the coming months, hovering around 2%.
Data released this week in Brazil, coupled with the message from President Bolsonaro at the World Economic Forum, vowing to meet the country's fiscal targets and reduce distortions, support our benign inflation view and monetary policy forecasts for this year.
The Fed's unanimous vote for a 25bp rate hike was overshadowed by the bump up in the dotplot for next year, with three hikes now expected, rather than the two anticipated in the September forecast. Chair Yellen argued the uptick in the rate forecasts was "tiny", but acknowledged that some participants moved their forecasts partly on the basis that fiscal policy is likely to be eased by the new Congress.
Recent inflation numbers across the biggest economies in LatAm have surprised to the downside, strengthening the case for further monetary easing.
The August NFIB survey of activity and sentiment at small businesses was soft, but it could have been worse.
Economic conditions in Brazil are deteriorating rapidly.
Inflation in the Andes remains in check and the near term will be benign, suggesting that central banks will remain on hold over the coming months.
Inflation is under control in most LatAm economies, and we expect headline rates to remain close to current levels in the very near term.
We can be reasonably sure that the headline May retail sales number will look quite strong, thanks to the surge in auto sales reported by the manufacturers last week. Sales of cars and light trucks soared past industry analysts' expectations to a nine-year high, rising 7.5% from their April level.
Data released in recent days have confirmed that private spending is on the mend in the biggest LatAm economies.
Mexico's inflation nudged up to a fresh 16-year high in August, but the details of the report confirmed that underlying pressures are easing, in line with our core view.
The reported rebound in January retail sales was welcome, but the overshoot to consensus was matched, more or less, by the unexpected downward revisions to the December numbers.
The Andean countries were quick to implement significant measures in response to the initial stage of the pandemic, adopting a broad range of economic and social policies to ease the effects.
Brazilian political risk remains high, due mainly to President Bolsonaro's gross mismanagement of the Covid-19 crisis, but, as we have argued in previous Monitors, it is unlikely to deter policymakers from further near-term monetary easing.
Brazil's political situation is steadily improving, with the latest events proving a step in the right direction.
The combination of unexpectedly strong auto sales and rising gas prices should generate strong-looking headline retail sales numbers for October. We have no idea what to expect for November, with two-thirds of the month coming after the election, but the final pre- election sales report will look good.
Outside the battered energy sector, the most consistently disconcerting economic numbers last year, in the eyes of the markets, were the monthly retail sales data. Non-auto sales undershot consensus forecasts in nine of the 12 months in 2015, with a median shortfall of 0.3%.
Mexico's inflation rate ended 2018 in line with market expectations, strengthening the case for interest rates to remain on hold in the near term.
Inflation pressures in Brazil are now well- contained, with the headline rate falling to a decade low in July. We think inflation is now close to bottoming out, but the current benign rate strengthens our base case forecast for a 100bp rate cut at the next policy meeting, in September.
Brazil's economic activity data have disappointed in recent months, firming expectations that the Q1 GDP report will show another relatively meagre expansion.
The first of this week's two July inflation reports, the PPI, will be released today. With energy prices dipping slightly between the June and July survey dates, the headline should undercut the 0.2% increase we expect for the core by a tenth or so.
Yesterday's first estimate of Q1 GDP in Mexico confirmed that growth was under severe pressure at the start of the year.
Data released on Wednesday confirmed that the Brazilian economy was relatively resilient in Q1. Leading indicators suggest that it will do well in Q2 and Q3, but downside risks are rising.
The underlying U.S. consumer story, hidden behind a good deal of recent noise, is that the rate of growth of spending is reverting to the trend in place before last year's tax cuts temporarily boosted people's cashflow.
Yesterday's first estimate of full-year 2016 GDP in Mexico indicates that growth gathered momentum over the second half of last year. But risks are now tilted to the downside, following the U.S. election. GDP rose 0.6% quarter-on-quarter in Q4, after a 1.0% increase in Q3. Growth was much slower in the firs t half, as shown in our char t below.
Inflation in Mexico edged higher in the second half, but we expect both the headline and core rates to continue falling, allowing Banxico to keep interest rates on hold.
Inflation pressures are gradually easing in Mexico, opening the door for rate cuts as early as next month. The June CPI report, released yesterday, showed that prices rose 0.1% month-to-month unadjusted in June, in line with market expectations.
Yesterday's CPI report in Mexico confirmed that headline inflation edged higher, to 5.0% in September from 4.9% in August, as the mid-month inflation index suggested.
We expected a modest correction in the number of job openings in July, following the surge over the previous few months, but instead yesterday's JOLTS report revealed that openings jumped by a mind-boggling 8.1% to a new record high. In the three months to July, the number of openings soared at a 35% annualized rate. As a result, the Beveridge Curve, which compares the number of openings to the unemployment rate, is now further than ever from normalizing after shifting out decisively in 2010.
On the face of it, our forecast of higher core inflation by the end of this year is seriously challenged by the recent data.
The CBO reckons that the April budget surplus jumped to about $179B, some $72B more than in the same month last year. This looks great, but alas all the apparent improvement reflects calendar distortions on the spending side of the accounts.
This week real data in Brazil supported the idea that the worst of the recession is likely over, but a V-shaped rebound is not in the cards.
This week's data have offered further clear hard evidence of the Covid-19 shock to the Mexican economy, supporting our base case of further interest rate cuts in the coming monetary policy meetings.
The 0.1% dip in the core CPI in March was the first outright decline in three years, but we expect another-- and bigger--decline in today's April numbers.
The overshoot in the November core PPI does not change the key story, which is that PPI inflation, headline and core, is set to fall sharply through the first half of next year, at least.
It's hard to know what to make of the October CPI data, which recorded hefty increases in healthcare costs and used car prices but a huge drop in hotel room rates, and big decline in apparel prices, and inexplicable weakness in rents.
If the Phase One trade deal with China is completed, and is accompanied by a significant tariff roll-back, we'll revise up our growth forecasts, but we'll probably lower our near-term inflation forecasts, assuming that the tariff reductions are focused on consumer goods.
Inflation in Brazil ended 2018 under control, despite slightly overshooting expectations.
Inflation in Brazil Ended 2019 Above the BCB's Target; 2020 will be Fine
The Fed will raise rates by 25bp today, but we expect no change in the median expectation-the dotplot-for two rate hikes both next year and in 2018. We fully appreciate that fiscal easing on the scale proposed by President-elect Trump, or indeed anything like it, very likely would propel inflation to a pace requiring much bigger increases in rates.
Our base case is that the core CPI rose 0.2% in December, but the net risk probably is to the upside. We see scope for significant increases in sectors as diverse as used autos, apparel, healthcare, and rent, but nothing is guaranteed.
After five straight undershoots to consensus, with the core CPI averaging monthly gains of just 0.05%, investors are asking hard questions about the Fed's belief -- and ours -- that core inflation is headed towards 2% in the not-too-distant future.
Data released yesterday showed that gross fixed investment in Mexico started Q4 on a decent note, increasing on the back of healthy purchases of imported machinery and equipment and construction spending.
The rate of growth of nominal core retail sales substantially outstripped the rate of growth of nominal personal incomes, after tax, in both the second and third quarters.
Consumption accounts for almost 70% of GDP, and retail sales account for about 45% of consumption.
Our current base-case forecast for the second quarter is a 30% annualized drop in GDP, based on our assessment of the hit to discretionary spending by both businesses and consumers.
The story of U.S. retail sales since last summer is mostly a story about the impact of the hurricanes, Harvey in particular.
When the dust settles after today's wave of data, we expect to have learned that core retail sales continued to rise in June, core inflation nudged back up to its cycle high, and manufacturing output rebounded after an auto-led drop in May. None of these reports will be enough to push the Fed into early action, but they will add to the picture of a reasonably solid domestic economy ahead of the U.K. Brexit referendum.
We argued earlier this week that the data on the consumer economy are likely to be rather stronger than the industrial numbers.
Friday's detailed October CPI report in Germany confirmed that inflation pressures are steadily rising. Inflation rose to 0.8% year-over-year in October, from 0.7% in September, lifted mostly by a continuing increase in energy prices.
Here's the bottom line: U.S. businesses appear to have over-reacted to the impact of the trade war in their responses to most surveys, pointing to a serious downturn in economic growth which has not materialized.
Thursday's CPI report in Mexico showed that inflation is edging lower. We are confident that it will continue to fall consistently during Q1, thanks chiefly to the subpar economic recovery, low inertia and the effect of the recent MXN rebound.
Today's rate hike will be accompanied by a new round of Fed forecasts, which will have to reflect the faster growth and lower unemployment than expected back in September.
Whatever happened to consumers' sentiment in March, the level of University of Michigan's index will be very high, relative to its long-term average.
We remain resolutely open-minded about the medium-term inflation outlook, on the straightforward grounds that the post-Covid economy will bear little resemblance to any previous U.S. economic experience.
The Fed surprised no-one by raising rates 25bp yesterday and leaving in place the median forecast for three hikes next year and two next year.
Within the next few month, and perhaps as soon as next month, the gap between the headline NFIB and ISM manufacturing indexes, shown in our first chart, will close for the first time since late 2008.
The Mexican economy gathered strength in Q3, due mainly to the strength of the services sector, and the rebound in manufacturing, following a long period of sluggishness, helped by the solid U.S. economy and improving domestic confidence.
The consensus forecast for the October core CPI, which will be reported today, is 0.2%. Take the over. Nothing is certain in these data, but the risk of a 0.3% print is much higher than the chance of 0.1%.
The third straight 0.3% increase in the core CPI-- that hasn't happened since 1995--was ignored by the Treasury market yesterday, which appeared to be focusing its attention on the ECB.
LatAm governments and policymakers are bracing for a more dramatic and longer virus-led downturn than initially expected.
Now that the run of unfavorable base effects in the core CPI--triggered by five straight soft numbers last year--is over, we're expecting little change in the year- over-year rate through the remainder of this year.
Chair Yellen broke no new ground in her Testimony yesterday, repeating her long-standing view that the tightening labor market requires the Fed to continue normalizing policy at a gradual pace.
December's retail sales numbers are the most important of the year for retailers, but they don't necessarily tell us anything about the future prospects for consumers' spending or the broad economy. The December 2016 numbers, however, might be different, because they capture consumers' behavior in the first full month after the election.
The headline CPI inflation rate almost certainly dipped below zero in September, barring a startling and deeply improbable surge in the core. We look for a 0.4% month-to-month headline drop, driven by an 11% plunge in gasoline prices, pushing the year-over-year rate to -0.3%. This is of no real economic significance, not least because hugely unfavorable base effects mean the year-over-year rate almost certainly will rise sharply over the next few months, reaching about 1¾% as soon as January.
The acceleration in real consumption over the past year reflects the upturn in real after-tax income growth. This, in turn, is mostly a story of falling gasoline prices, which have depressed the PCE deflator. Gross nominal incomes before tax rose 4.2% year-over-year in the three months to September, exactly matching the pace in the three months to September 2014. But real income growth, after tax, accelerated to 3.3% from 2.5% over the same period, as our first chart shows.
A modest dip in gasoline prices will hold down the October CPI, due today, but investors' attention will be on the core, after five undershoots to consensus in the past six months.
Let's be clear: The July retail sales numbers do not mean the consumer is rolling over, and the PPI numbers do not mean that disinflation pressure is intensifying. We argued in the Monitor last Friday, ahead of the sales data, that the 4.2% surge in second quarter consumption--likely to be revised up slightly--could not last, and the relative sluggishness of the July core retail sales numbers is part of the necessary correction. Headline sales were depressed by falling gasoline prices, which subtracted 0.2%.
June's headline CPI, due this morning, will be boosted by the rebound in gasoline prices, but market focus will be on the core, in the wake of the startling, broad-based jump in the core PPI, reported Wednesday. Core PPI consumer goods prices jumped by 0.7% in June, with big incr eases in the pharmaceuticals, trucks and cigarette components, among others. The year-over-year rate of increase rose to 3.0%, up from 2.1% at the turn of the year and the biggest gain since August 2012. Then, the trend was downwards.
Retail sales account for some 30% of GDP--more than all business investment and government spending combined--so the monthly numbers directly capture more of the economy than any other indicator. Translating the monthly sales numbers into real GDP growth is not straightforward, though, because the sales numbers are nominal. Sales have been hugely depressed over the past year by the plunging price of gasoline and, to a lesser extent, declines in prices of imported consumer goods.
The headline May retail sales numbers were flattered by a 2.4% leap in the wildly volatile building materials component and a price-driven 2.0% surge in gasoline sales.
The bad economic news in Brazil is unstoppable. The mid-month CPI index rose 1.3% month-to-month in February, as education, housing, and transport prices increased. School tuition fees jumped 6% month-to-month in February, reflecting their annual adjustment, and transport costs rose by 2% due to an increase in regulated gasoline prices.
The elevated September ISM non-manufacturing index reported yesterday--it dipped to 56.9 but remains very high by historical standards--again served to underscore the depth of the bifurcation in the economy. The services sector, boosted by the collapse in gasoline prices and the strong dollar, is massively outperforming the woebegone manufacturing sector.
Banxico's likely will deliver the widely-anticipated rate hike this Thursday. Policymakers' recent actions suggests that investors should expect a 50bp increase, in line with TIIE pric ing and the market consensus. The balance of risks to inflation has deteriorated markedly on the back of the "gasolinazo", a sharp increase in regulated gasoline prices imposed to raise money and attract foreign investment.
We have argued for some time that investors began much too soon to look for stronger consumption in the wake of the drop in gasoline prices. Typically, turning points in gas prices trigger turning points in the rate of growth of retail sales with a lag of six or seven months.
It's probably too soon to start looking for second round effects from the drop in gasoline prices in the core CPI. History suggests quite strongly that sharp declines in energy prices feed into the core by depressing the costs of production, distribution and service delivery, but the lags are quite long, a year or more.
We have argued for some time that the plunge in gasoline prices will constrain core inflation over the course of this year, by reducing production and distribution costs for a broad array of goods.
Gasoline prices dropped sharply last month, but the 4½% seasonally adjusted fall we expect to see in the December CPI report today was rather smaller than the 9% collapse in December 2014, so the year-over-year rate of change of gas prices will rise, to -20% from -24% in November. This means headline inflation will rise too, though the extent of the increase also depends on what happens to the core rate.
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