Headline PPI fell by .5% m/o/m in December, more than the estimate of down one tenth. The core rate rise of .1% was as forecasted but November was revised lower by two tenths. The y/o/y headline gain slowed to 6.2% from 7.4% while the core rate was up by 5.5% vs 6.2% in the month prior.
About half the decline for goods prices was the 13.4% drop in gasoline, followed by other fuel products and food too. Ex food and energy saw wholesale goods prices up by .2% m/o/m and 6% y/o/y. Services inflation was higher by one tenth m/o/m and 5% y/o/y with transportation/wholesaling prices lower for a 2nd month but still up by almost 11% y/o/y. Leading the services gain was airline passenger services, inpatient care, and professional and commercial equipment wholesaling. Specifically with respect to the ‘truck transportation of freight’, prices fell 1.7% m/o/m.
Inflation in the pipeline was mixed as they fell again for processed goods but rebounded for unprocessed goods.
Bottom line, the HIGH inflation story continues to melt away but HIGHER than pre-Covid is still alive and well I believe. And, with oil prices all of a sudden at a 2 month high on the China reopening, at least the commodity side of wholesale inflation is far from a dead story and I’ll argue again that commodity prices are going notably higher from here because of China. That, I believe, will only complicate the Fed’s job in Q2, Q3 and Q4. As for the argument that China’s supply chains will normalize on the reopening and that will ease cost pressures, they never really shut down over the past few years as factories were kept open.
Core PPI
Core retail sales for the key November and December time frame were soft, falling two tenths in November and by another 7 tenths in December. That December print was 4 tenths worse than expected. Sales weakness was broad based as they fell in both holiday months in autos/parts, furniture, electronics, building materials, clothing, department stores, and restaurant/bars. As for online retailing, after a 1% rise in October, they fell one tenth in November and by 1.1% in December.
I think it’s important here to highlight retail sales in dollar terms, in nominal terms too, ex gasoline in December as they fell to the least since July. This is a reflection of how much inflation has eaten into one’s standard of living and a shrinking pile of savings both on a stock one and on a flow basis as seen by the near lowest savings rate since 1959 when records were first kept.
Treasury yields remain lower on the news but also due to the BoJ story.
Retail Sales ex gas