Price trends will challenge sustained retail gains

Consumer price pressures edged higher through the end of 2017 in ways that remain a threat to retail goods most of all.

Price inflation rose in food and energy and remained elevated in services—in stark contrast to prices that continued to decline among goods (as measured year-to-year through December).

As a result, sales of retail and consumer goods will face continuing pressure going forward as price trends give consumers—particularly lower-income—reason to economize on discretionary goods to pay for higher prices for food, fuel, and services.

These price trends will be among the factors that make it difficult for the retail sector—especially brick and mortar retailers—to sustain the healthy sales gains evident through the holiday. See more about holiday sales here.

Here is more on what the latest numbers on consumer prices say about:

  • Overall inflation. Despite specific inflation signs, overall and core inflation measures remain relatively muted. Total CPI inflation at 2.1% and core inflation (less food and fuel) at 1.8% held relatively steady or were lower than the year-ago measures through December.
  • The food & fuel threat. The growing inflation threat is most evident in the turnaround in food from falling prices a year ago (-2.0%) to rising prices recently (+0.9%). Meanwhile, energy price pressures continue to climb (+6.9%).
  • Service categories. Price inflation remains elevated in service categories overall, but is especially challenging in key categories. For example, rent and house payments continue to lead month-to-month price gains—resulting in sustained year-to-year price inflation above 3%.
  • Goods categories. The deflation threat remains most pronounced in apparel (-1.7%) and home furnishings (-1.7%). Automobile prices also remain down year-to-year (-0.3%), but showed among the biggest month-to-month price gains (+0.9%) among categories.
  • The Fed impact. Despite the mixed inflation threat, expect the Federal Reserve to remain intent on raising interest rates to forestall the threat of future inflation—and as part of its plan to unwind the intervention (i.e., quantitative easing) it undertook during the last recession.

These results are based on MacroSavvy’s analysis of latest Consumer Price Index data from the Bureau of Labor Statistics.

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