PPI and Retail Sales, Not Much of a Surprise

November 14, 2007

The market was banking on this morning’s retail sales and producer prices to clear the air on what the Federal Reserve will do in December. Last week Bernanke was more focused on the downside risks to growth than inflation but according to the October numbers, retail sales were stronger than expected, with an upward revision to the prior month’s data while producer price growth was flat on a core basis. This does not mean that inflation is not here. The annualized pace of PPI growth still hit a 2 year high. Although these numbers are more dollar positive than negative, the door remains open for a December rate cut. Unfortunately there is not enough of a surprise element in the data to cause a meaningful movement in the US dollar. The probability of a quarter point rate cut next month is 80%.

Posted in retail sales, US Dollar