Weakness in general merchandise sales (-0.2%) and clothing store sales (-0.3%) was consistent with soft readings in the weekly chain-store sales figures over the past several weeks. The other components were mixed, with furniture and health care suffering modest declines while sales of electronics (+0.5%), building materials (+0.7%) and food (+0.3%) improved.
Overall, despite the tamer than expected March retail sales figures, the data had no impact on S&P MMS' first quarter consumption outlook. Indeed, the small downward revision in February retail sales growth followed a larger upward revision for January to leave the level of sales in the first quarter almost exactly in line with our forecast. S&P MMS still expects a 3.3% gain in real consumption during the first quarter following the enormous 6.1% surge seen in the fourth quarter.
The overall PPI surged 1.0% in March, while the core index rose 0.1%. As expected, strong gains in both energy and food prices boosted wholesale prices on the month. Energy prices jumped 5.5%, thanks to a 21% surge in gasoline prices and a 20% rise in fuel oil. Food prices increased 0.6%, led by a 23% gain in vegetables and an 18% increase in the price of eggs.
As for the core components, capital equipment prices rose 0.1% and core consumer goods climbed 0.2%, which marks the largest increase in this component since September. There was no one component that accounted for the gains.
Overall, today's report appears to be some payback for the very benign inflation figures seen over the last few months. While this trend suggests that the best news on inflation is behind us, current trends still suggest no reason for the Fed to be in a hurry to raise rates. The headline PPI is still falling at a 1.4% year-over-year rate, while the core is rising at a subdued 0.4% year-over-year. In addition, market sentiment has focused more on the rise in energy prices from the perspective of a consumption tax rather than the inflationary risk. From Standard & Poor's Global Markets