Macroeconomic data released this week reveal that gradually easing price pressures are promoting consumer resilience, while high financing costs continue to bite producers. The Consumer Price Index (CPI) rose just 0.1% in November, amounting to a 3.1% year-to-year upswing. The headline print was muted by a downdraft in gasoline prices and ongoing moderation in food costs. In contrast, firmer services prices continue to prop up core inflation. A 0.3% monthly uptick in core prices translated to a 4.0% annual gain in November, unchanged from October’s rate.
Despite core CPI seemingly stuck at double the Fed’s inflation target, there are encouraging signs of more progress to come. A recent streak of softer prints brought the three-month annualized core rate to 3.4% through November, suggesting that disinflation has more room to run in the coming months. Gradually cooling labor costs should also help to keep a lid on services inflation, while stalling wholesale prices reduce the risk of price reacceleration. That said, price pressures have not completely abated. This week, we also received the latest NFIB Small Business Economic Trends Survey. In November, the net share of small businesses expecting to raise prices in the coming months reached its highest reading in one year (34%), consistent with a bump in plans to raise compensation.
Nevertheless, inflation expectations are adjusting lower. A survey from the New York Fed found that consumers anticipate a 3.4% annual increase in prices over the next year, the softest expectation since April 2021. A solid string of slower inflation readings also led FOMC members to take down their own forecasts, supporting their decision to hold rates steady for the third straight meeting in December. In the latest Summary of Economic Projections (SEP), the median FOMC participant expected core PCE inflation to print at 3.2% this year, down from 3.7% in the September SEP. These adjustments give a nod to ongoing progress on inflation, while acknowledging that price growth is likely to proceed above target. See Interest Rate Watch for more insight into how these developments affect our outlook for Federal Reserve policy.
Receding inflation appears to be bolstering consumer staying power. Retail sales rose 0.3% in November, outshining expectations of a slight decline. Based on our estimates, sales mounted a more impressive 0.9% increase on an inflation-adjusted basis, the fastest pace since last January. In addition to demonstrating enduring consumer resilience, November’s print also signals a solid holiday shopping season this year. Holiday sales are now on track to grow just under 5.0% on an annual basis. If realized, this spending pace would be a downshift from post-pandemic norms while still remaining above the longer-term average. Finally, a 0.9% real increase in control group sales in November set up GDP to advance a touch faster than we currently expect in Q4.
Wells Fargo Economics & Financial Report / Oct 13, 2023
The Consumer Price Index (CPI) rose 0.4% in September, a monthly change that was a bit softer than the 0.6% increase registered in August. The core CPI rose 0.3% during the month, a pace unchanged from the month prior.
Wells Fargo Economics & Financial Report / Feb 22, 2020
Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.
Wells Fargo Economics & Financial Report / Nov 16, 2023
Sometimes, the impact of higher rates is quite obvious, such as the series of bank failures that occurred earlier this year.
Wells Fargo Economics & Financial Report / Jun 27, 2020
The rising number of COVID-19 infections gained momentum this week, with most of the rise occurring in the South and West. The rise in infections is larger than can be explained by increased testing alone and is slowing re-openings.
Wells Fargo Economics & Financial Report / Mar 07, 2023
Looking at Q4 GDP, Australia\'s economy grew by less than expected, GDP was flat for the quarter in both Canada and Switzerland, and Sweden\'s economy contracted in the final quarter of last year.
Wells Fargo Economics & Financial Report / Apr 11, 2020
The Federal Reserve greatly expanded the collateral that it is willing to buy, further easing pressures in financial markets.
Wells Fargo Economics & Financial Report / Jun 22, 2020
Retail sales kicked off the week with a bang, rising 17.7% month-over-month in May. The increase was larger than every single one of the 74 forecast submissions.
Wells Fargo Economics & Financial Report / Oct 19, 2019
Personal consumption is still on track for a solid Q3, but retail sales declined in September for the first time in seven months.
Wells Fargo Economics & Financial Report / Oct 24, 2020
A recent strong report from the National Association of Homebuilders set the tone for another round of strong housing data. The NAHB index rose two points to a record high 85.
Wells Fargo Economics & Financial Report / Nov 08, 2023
Although payroll growth is easing, the labor market remains relatively tight. The unemployment rate inched up to 3.9% in October, slightly higher than the cycle low of 3.4% first hit in January 2023, but still low compared to historical averages.