The Week Ahead: Latest data on inflation, interest rates, retail sales

It's one of those weeks when we'll learn a lot about the state of the US consumer economy.

The Week Ahead: Latest data on inflation, interest rates, retail sales

Welcome to a new week. For many brands and retailers, it’s a slower time in earnings season and professional events are mostly on hold amid the busy holiday shopping season. But it’s a critical week for the economy that will say a lot about how we are finishing 2022, and prospects for 2023. Three areas that are of particular interest for the consumer economy are set to see new data released: Inflation, interest rates and retail sales (aka consumer demand). Here’s a look at what the past week’s data may tell us about what we're about to see this week, and the schedule:

​Prelude: Last week’s data

All eyes are on inflation, the Fed’s efforts to bring it down and what those could mean for the overall growth trajectory of the economy. Heading into this week’s release of the Consumer Price Index for November, last week offered a mixed picture of inflation.

The Producer Price Index, which measures wholesale prices before they reach retail, rose 0.3% in November, equaling the monthly increases for September and October. This came in higher than expected, according to CNBC. So, it was taken by Wall Street as a potential sign that the cooling of inflation observed in October may not be as sticky as thought. However, the index’s annual increase continued to cool off to 7.4% – well below the March peak of 11.7%. That indicates there may still be room for a slowdown of the sort observed in last month’s CPI. Note that the Producer Price Index tends to be more forward looking, so the CPI and PPI is not an exact comparison.

The Digital Price Index from Adobe showed a big decline as it entered firmly into deflation with the steepest year-over-year drop in 31 months of 1.9%. While this was driven by holiday discounts in areas like electronics, toys and sporting goods, Adobe noted that cooling of prices and pet products could be an indicator of more slowing in the sorts of broader categories that apply widely across the economy in the Consumer Price Index.

Consumer sentiment ticked back up to start December, the University of Michigan reported. The 4% gain was enough to pull back decreases observed in November, but remains low by historical standards. “Throughout the survey, concerns over high prices—which remain high relative to just prior to this current inflationary episode—have eased modestly,” UMich Survey of Consumers Joanne Hsu reported. Year-ahead expectations for inflation, which are followed by the Federal Reserve, also fell from 4.9% to 4.6%, which is the lowest reading in 16 months.

The calendar

Consumer Price Index:The widely-watched inflation rate for November came down to 7.7% in November, which was its first time below 8% in months. So the question will be whether that cooling can continue this month. Keep in mind that comparisons are starting to lap the period in 2021 when inflation began to rise, meaning we are beginning to view annual rates not from a low baseline, but from one of elevated inflation. A look at the two-year rate increase might tell a story of still-elevated inflation, as it did last month. (Dec. 13, 8:30 a.m.)

Fed rate decision: The Federal Reserve’s Open Markets Committee will deliver its latest verdict on whether and by how much to raise interest rates. Fed Chair Jerome Powell has already indicated that another rate hike is in the works, but the question here is whether the increase will be lower than the series of 0.75% jumps over the last four meetings. Powell has said the committee may be open to slowing the pace, but it will depend on data like this week’s Consumer Price Index. Whatever the number, look for Powell to continue discussing how long the central bank will have to keep hiking interest rates, which could bring a more sustained period of hikes to cool demand that can do just as much to slow the economy cumulatively as a high single meeting hike. (Dec. 14, 2 p.m.)

US retail sales: A snapshot of early holiday season results and consumer demand as a whole arrives when the US Commerce Department reports retail sales for November. This will include sales for the Black Friday-Cyber Monday period, so should provide some indication of how much lift these shopping days delivered this year. Two competing forces will be present: Continuing inflation that is driving prices of essentials up, and heavy discounting for holiday sales that are pushing prices of discretionary items down. But categories beyond core retail could continue to have an impact. Bank of America Research forecasts a decline of 0.9% in headline retail sales, driven by a decline in new auto purchases. (Dec. 15, 8:30 a.m.)

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