Retail Sales On Thursday Will Determine The USD Dynamics

The US dollar fell on Tuesday after the March inflation data release. The CPI increased 2.6% vs 1.7% a month earlier. The Core CPI increased only 1.6% vs 1.3%, respectively. Obviously, market participants were disappointed with the growth pace of core inflation, which doesn`t consider food and energy prices. Oil prices exactly have a significant impact on the CPI in recent weeks.

The Core CPI is influenced not only by consumer activity within the United States but also by the price growth of imported goods from China. At the same time, not only goods are imported from China, but also constituent components that are part of the products manufactured in the United States. It can be seen from the relationship between Chinese PPI and US PPI.

US PPI, Core PPI and Chinese PPI

Chinese PPI and US PPI

Since China is the leading exporter of goods to the United States, rising producer prices in China significantly affect inflation in the United States, including its constituents.

However, consumer demand is also driving US inflation. Retail sales in January accounted $579.1B vs $528.8B year-on-year. Retail sales have exceeded pre-crisis levels and continue to grow.

US Retail Sales and Core CPI

The graph depicts the Retail Sales and the Core CPI 2 months shift.

The retail sales growth affects inflation with a slight delay of 1-2 months. As you can see from the graph, the recent 7.43% year-on-year increase in retail sales in January boosted the Core CPI. It means that March retail sales of at least the February value of $561.6B will suffice for further growth in core inflation. According to the consensus forecast, retail sales rose 5.9% in March.

The Redbook Index confirms that retail sales increased in March. Redbook data released on Tuesday showed sales up 13.2% year-on-year at the first week of April. This growth should be reflected in retail sales growth in March.

US Retail Sales and Redbook

Redbook and Retail Sales

If the forecast for retail sales growth comes true, it will mean that Core CPI will rise over the next two months. It will give new impetus to the idea of possible early curtailment of the Fed`s bond purchase program and will strengthen the dollar.

Disclaimer: This material contains general commentary only and is not intended to constitute or be relied upon as personal financial advice. To the extent that this material contains any general ...

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