April US retail sales were weaker than expected at 0.5% m/m. That disappointment was offset by upward revisions to February and March data. Yep, that’s right – upward revisions to the weak Q1 retail sales data that had everyone lowering their Q1 GDP forecasts means that Q1 GDP will likely be revised up to around 2.2-2.3%, not far short of our original 2.5% forecast!
That shouldn’t detract from the fact that real spending is only crawling ahead at the beginning of Q2 as higher food and energy prices impact on household spending. With the CPI up 0.4% on the month (3.2% y/y) real sales only just nudged ahead over the month. However, with commodity prices (especially oil) now lower, that may provide some respite to household budgets in the months ahead, especially if a downward trend is established.
The inflation report also showed core prices rising 0.2% m/m in April. That takes the annual rate of increase to 1.3%, up from 1.2% in March. Over the last two months, rising motor vehicle prices has been a significant contributor to the increase in core prices. Some US commentators are suggesting this is due to supply disruptions following the Japan earthquake. That seems like a reasonable call to me and if true, this will prove to be a temporary factor likely to reverse out later this year.
In short, there doesn’t appear to be anything in the inflation data to cause anyone on the FOMC any sleepless nights.