Retail Sales and PPI Show Deflationary Trend in October … What Inflation?

Producer Price Index for October was -0.2% on the headline report and also came in at -0.2% on the more focused core PPI reading, which takes out the volatility of food and energy. These readings from the Labor Department are handily lower from the gains seen in September. These are also under expectations: Bloomberg was calling for +0.2% on the headline PPI and on the core PPI; Dow Jones was looking for +0.2% on the headline PPI and +0.1% on the core PPI reading. It is important to note that energy prices were down by 0.5% in the month.

Retail sales were lower in October, partly due to the effects of Hurricane Sandy. The headline report showed a reading of -0.3%, and the ex-autos retail was unchanged, in this release from the Department of Commerce. This seasonally adjusted reading came to $411.59 billion. Dow Jones was looking for +0.2% on the headline report, while Bloomberg was calling for -0.1% on the headline data and +0.2% on the ex-autos basis.

With a lower PPI and with a subdued retail sales report from the same month (October), investors will say that this is support of the Federal Reserve actions because there is no inflation. Unfortunately, if it continues then the deflation camp will start to make more noise.

JON C. OGG