Overview: Last week, investors became more concerned about rising inflation due to stronger than expected Consumer Price Index (CPI) data. However, tame Producer Price Index (PPI) inflation data and a weak consumer spending report eased those fears this week. As a result, mortgage rates ended a little lower.
After several months of solid gains, consumer spending unexpectedly posted a steep decline in January, partly due to bad weather and California wildfires. Retail sales plunged 0.9% from December, far more than the consensus forecast for just a slight drop. Sectors displaying the most weakness included autos/parts, online outlets, and sporting goods/hobbies. Investors will be watching closely in coming months to see whether the slowdown in spending was just temporary or the start of a longer trend.
While last week’s important CPI inflation data was stronger than anticipated, another significant inflation indicator released this week (PPI) was roughly in line with the expected levels. PPI measures costs for producers. January core PPI rose 0.3% from December, matching the consensus forecast. It was 3.6% higher than a year ago, up from 3.5% last month and the highest annual rate since February 2023. Of these two major inflation reports, investors generally place less weight on PPI, since it covers a smaller portion of the economy than CPI.
The minutes from the January 29 Federal Reserve meeting released on Wednesday emphasized that officials are in no hurry to further reduce the federal funds rate. According to the minutes, unexpectedly stubborn recent inflation data and uncertainty about changes to trade and immigration policies warrant taking time to “assess the evolving outlook” for the economy. In other words, officials would like to see additional progress on bringing down inflation before lowering rates. Investors now anticipate that the next rate cut will take place in July or September.
Retail Sales (% change)
Week Ahead
Feb. 21
Existing-Home Sales report
Feb. 25
Consumer Confidence Index
Feb. 26
New-Home Sales report
Feb. 28
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index
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