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January CPI Above Expectations on Strong Apparel Costs, Retail Sales Below

Feb 14, 2018

Following yesterday’s announcement by Fed chairman Powell that the previously scheduled rate hikes for 2018 will continue as planned despite recent market volatility, investors received further concerning news. CPI data released this morning showed that consumer prices rose faster than previously forecasted. Prices rose 0.5% over the last month, beating estimates of a 0.3% increase on the strength of apparel costs which rose the most in almost three decades at 1.7% in January. The fear that a potential rise in the rate inflation may necessitate further fed hikes above those already scheduled for the current year may be growing. There is, however, an interesting outlier to the recently released price index.

While overall prices climbed faster than expected, retail sales, largely indicative of consumer spending, unexpectedly fell in January. A dip in consumer spending may show a lowering of consumer confidence, which would work to halt any potential further rate hikes this year. This would come as welcome news to investors hoping for a reprieve from further rises in Fed rates.

Overall, the CPI report, in concert with the Fed’s unwillingness to change course and the volatility in the stock market, has put many investors on edge. Yields have already experienced significant gains on a year-to-date basis. Investors hoping for a slower growth to the CPI were left disappointed, but now will have to hope further repercussions aren’t soon to follow.