US Retail Sales and Producer Prices Fall, Relieving Fed Pressure

WASHINGTON: U.S. retail sales and wholesale prices fell in February as the central bank gears up for a key interest rate decision next week, according to government data released Wednesday (March 14). given policy makers some leeway.

The Federal Reserve has embarked on an aggressive campaign to tackle inflation, initially suggesting it could speed up the pace of rate hikes as the world’s largest economy turns wilder than expected.

But Fed officials must balance these efforts with a desire to steer the U.S. through banking sector turmoil following last week’s Silicon Valley bank failure and contagion fears. .

For now, weaker economic data, including a weaker manufacturing sector, is likely to discourage the Fed from rushing to raise rates.

Retail sales shrank 0.4% to US$698 billion in February, down from the previous month’s revised figure of US$701 billion, the Department of Commerce said Wednesday.

This was due to a 4% decline in department store sales and lower sales in furniture and home goods stores.

Consumers are also cutting back on shopping at car dealerships, restaurants and bars.

“Retail sales took a step back in February, but not enough to indicate a significant drop in consumer confidence,” said Oren Krakin of Oxford Economics.

“We expect private consumption to weaken in the second half of the year as income growth slows, excess savings dries up, borrowing costs rise and inflation remains high,” he added.

Inflation ‘still high’

U.S. producer prices also fell 0.1% last month, according to another Labor Department figure, as the cost of eggs, gas and diesel fuel fell.

In particular, the price of eggs fell 36.1%, as did indices of domestic natural gas, fresh and dried vegetables, and diesel fuel.

“Producer prices are past their peak, but inflation is still rising,” said Rubira Faroochi, chief U.S. economist at High Frequency Economics.

Business activity in New York state similarly fell last month, further demonstrating weakness in the manufacturing sector as the effects of the Federal Reserve’s (Fed) rate hike rippled through the economy.

The New York Fed’s Empire State Manufacturing survey saw activity contract in March, with little prospect of improvement, and the measure plummeted.

The latest figures follow the release of the Consumer Price Index the day before, which indicated that price gains continue to moderate.

However, inflation measures are well above the Fed’s long-term target of 2%.

As the Fed considers raising rates for the ninth time in a row next week, the impact of its campaign is being felt in the market, especially at regional banks.

Analysts expect the Fed to proceed with a 25 basis point rate hike in March despite recent financial market stress and bank failures.

“We do not believe recent events pose a systemic risk to the banking sector and the government is taking steps to stem the risk of panic,” Crackkin said.

“A pause in the rate hike cycle would be premature as inflation continues to rise and GDP growth remains resilient,” he added.