2/14/25: US Economic Update: CPI, PPI, Retail Sales, and Treasury Rates

This week’s economic data provided valuable insight into the state of the consumer and inflation. The headline Consumer Price Index (CPI) accelerated to 0.5% m/m and 3.0% y/y in January. The Core CPI, which excludes the volatile food and energy sectors, jumped 0.4% m/m and 3.3% y/y. While seasonal adjustments likely played a role, shelter costs comprised about 30% of the overall rise. Notably, egg prices soared 15% in the month, driven by the avian influenza outbreak that led to mass cullings and supply shortages. At the same time, rising costs in auto insurance, used vehicles, medical care, communication, and airfares also contributed to the hotter than expected inflation reading. The Producer Price Index (PPI) was up 0.4% m/m and 3.5% y/y in January, decelerating slightly from upwardly revised December readings.

Meanwhile, real average hourly earnings rose 1.0% y/y in January, off of a 1.2% increase in the previous month. The Advance Retail Sales report for January fell short of expectations, dropping 0.9% m/m following a +0.7% increase in December. On a year-over-year basis, retail sales were up 4.2% on a seasonally but not price adjusted basis. Motor vehicle and parts dealers gained 6.4% y/y, while restaurants and bars were up 5.4% versus one year ago. The weaker January retail sales estimates versus December were likely due to the upward revisions to the strong holiday shopping season and consumers front loading purchases in anticipation of tariffs.

The Chandler team continues to closely monitor the rapidly evolving developments in international trade relations and their economic impacts. While a 10% tariff on goods from China has been imposed, 25% duties on Canada and Mexico are on hold, 25% tariffs on steel and aluminum are slated for next month, and the threat of reciprocal tariffs have been postponed until April 2 pending negotiations.

US Treasury rates surged on the hot CPI inflation reading but retreated to end the week lower after the PPI and retail sales data releases. As of this morning, the 2-year note is trading at 4.25%, the 5-year note at 4.32%, and the 10-year yield at 4.47%. This week also saw the quarterly refunding announcement by the US Treasury Department, with the bond market absorbing US Treasury supply of $58 billion 3-year notes, $42 billion 10-year notes, and $25 billion 30-year bonds. In light of recent inflation increases, the Federal Reserve is widely expected to hold short-term interest rates unchanged at their March 19 meeting at a fed funds target range of 4.25 – 4.50%.

Next week: Empire Manufacturing, Housing Starts, FOMC Meeting Minutes, Philadelphia Fed Business Outlook, Leading Index (LEI), S&P US Manufacturing & Services PMI, University of Michigan Sentiment Index, Existing Home Sales

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