US CPI / retail sales preview - Nomura

Analysts at Nomura explained their outlook for the key US events ahead today in CPI and retails sales.

Key Quotes:

CPI: We expect headline CPI to increase by only 0.1% (0.112%) m-o-m in October (Consensus: 0.1%) as a steady gain in core components was likely offset by lower energy prices. Our forecast for y-o-y inflation is +2.0% (2.048%) (Consensus: 2.0%). After a sharp increase in September, retail gasoline prices reversed the increase to some extent in October, leading to a 1.0% decline in the aggregate energy price index. 

Excluding food and energy, our forecast for core CPI is +0.2% (0.210%) m-o-m in October (Consensus: 0.2%) after a slightly weaker-than-expected reading of +0.1% (0.127%) in the previous month. Although core goods prices continued to make negative contributions to core CPI from March through September, we think that there are some inflationary pressures on core goods prices in October arising from various factors such as hurricane recovery efforts, the lagged effect from higher import prices and positive payback of lower drug prices in the previous month. Altogether, we forecast a y-o-y rate of 1.8% (1.759%) for core CPI in October (Consensus: 1.7%). We expect CPI NSA to be 246.680 (Consensus: 246.633). 

Retail sales: We expect core (“control”) retail sales to have increased a healthy 0.4% mo-m in October (Consensus: 0.3%), in line with healthy labor markets and steady income gains. The hurricanes had varied effects on September core retail sales. For October, we expect core retail sales to have recovered mostly from any residual impact from the hurricanes. Among noncore components, we expect sales at auto dealers to have declined slightly. October light vehicle sales slowed from the strong pace in September, which was boosted by high demand for replacement vehicles following the hurricanes. Although there still was some residual replacement vehicle demand in October, it was not enough to sustain the strong pace in September. Moreover, retail gasoline prices trended lower in October following a weather-driven increase in September. This implies that sales at gasoline stations may have fallen in October. Altogether, our ex-auto retail sales forecast is an increase of 0.3% (Consensus: 0.2%). We expect a 0.2% increase in total retail sales (Consensus: 0.0%)."