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CPI and retail sales in the limelight - Scotiabank

Derek Holt, VP & Head of Capital Markets Economics at Scotiabank expect a further decline in US June CPI numbers in year-ago terms as gas prices fell 2% m/m in June and will exert some downward pressure upon headline inflation.


Key Quotes


“The large year-ago percentage gains in gasoline prices are behind us as they were being compared to the move toward cheap gas at US$1.70 a gallon on average over a year ago. If just base effects are relied upon, headline CPI could drop from 1.9% all the way down to 1.5% y/y and core CPI would dip from 1.7% y/y to 1.6% y/y. Given normal seasonal patterns and limited price-tracking information, I figure about a 1.6–1.7% y/y headline CPI rate and core CPI inflation at about 1.7% y/y with frankly similar risks attached to a slightly stronger and slightly weaker core CPI rate. That doesn’t mean downside risks for core CPI are over as we’ll need decent and sustained monthly gains to offset year-ago base effects going forward.”


“Headline retail sales during June will be released at the same time as CPI and could come in soft. Vehicle sales fell 1% m/ m in volume terms and in dollar terms carry about a 20% weight. Gas prices fell 2% m/m with an 8% value weighting. Combined, they result in a weighted 0.35% drop in headline sales assuming flat vehicle prices and flat gasoline volumes. Assuming a 0.2% rise in sales ex-autos and gas with a weight of just over 70% after they were flat the prior month, headline sales could come in 0.2% lower. A flat to slightly lower volume of retail sales is likely to be inferred from CPI and the retail report.” 


“The Q2 earnings season unofficially kicks into higher gear as the financials begin reporting next Friday. Included among them will be JP Morgan Chase, Citigroup, Wells Fargo and PNC Financial.”


“Other data risk on Friday will include a new round of consumer confidence measures with the University of Michigan’s consumer sentiment gauge for July, industrial production during June that follows an upside surprise to ISM-manufacturing and real wage growth during June that has been ever-so-slightly improving over recent months but remains barely above zero. Producer prices are due out the day before.”

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