Inflation? Where? Now What, Fed?

We saw another week of volatility last week. It continues this week.

Equity markets moved violently up and down. Treasury yields crept a little higher.

The November retail sales figures were released. Holiday sales are shaping up to be OK. Not great. Not horrible either.

On the month, sales were expected to be up 0.1% and were up 0.2%. If we exclude autos and gas, sales were up 0.5% on the expectations of a 0.4% rise.

Car sales are falling and consumers don’t have to spend as much on gas since prices are falling. That leaves retail sales a little better than expected. It should give retailers a little hope that the important holiday season won’t be a total bust.

Despite the pleasant surprise in retail sales, stocks traded sharply lower. It looks as though we’ll see more of the rollercoaster days ahead.

Treasury yields also fell as funds flowed to the safety of bonds.

Inflation Drops

Inflation data was updated last week, and it may change Federal Reserve policy down the road because…

Falling energy prices were expected to impact consumer prices in November. They did.

The Consumer Price Index (CPI) was expected to remain unchanged on the month but was expected to drop year-over-year from 2.5% to 2.2%. There were no surprises there either.

Core consumer prices – excluding food and energy – were expected to rise 0.2% on the month and on the year were expected to increase slightly, from 2.1% to 2.2%. Again, there were no surprises.

November wholesale inflation pulled back as energy prices fell. But they were still higher than expected.

The Producer Price Index (PPI) moved up 0.1% on the month. It was expected to be unchanged.

Core inflation – again, excluding gas and food – jumped 0.3% on the expectation of a 0.1% move. On the year, core inflation increased to 2.7%, slightly higher than the 2.6% last month.

Energy prices were down 5% in the month and gasoline fell 14%. But on the year prices were only off by 2.9% and 1.2%, respectively.

Food prices moved higher by 1.3% in November, which followed a 1% jump in October. On the year, it was up a measly 0.4%. Overall, however, on-the-year wholesale prices fell from 2.9% to 2.5%.

Hmmm. Where’s the inflation?

The Fed will meet to decide on the interest-rate policy tomorrow. It’s widely expected that rates will go up another quarter point.

But then what happens next year? Recent speeches by the Fed chair and other officials indicated a likely change in policy going forward. And we’re keeping our eye on it because uncertainty is our bread and butter at Treasury Profits Accelerator.