Headline PPI rose 7.3% y/o/y, above expectations of 6.8% and its the fastest pace since Sept ’08. Wholesale inflation rose .2% m/o/m both headline and core. The core rate is up 2.1% y/o/y, unchanged with April and matches the highest since Aug ’09. The 1.4% fall in food prices almost offset the 1.5% gain in energy prices thus keeping a lid on the m/o/m gain. Inflation in the pipeline turned somewhat mixed as prices at the intermediate goods stage rose a robust .9% m/o/m and is up 10.3% y/o/y but the initial stage of production saw prices fall 4.1% (due to the drop in commodity prices from its recent highs). Bottom line, commodity inflation continues to be strongly reflected in PPI but we know the Fed has their eyes on what can be passed thru to the end user consumer where CPI tomorrow will reflect that. Either way, the Fed has rates well below the current rates of inflation which they believe (hope and pray) are ‘transitory’.
Getting to the core of the May Retail Sales figure, taking out volatile auto’s and gasoline station sales, had sales up .3%, a touch above expectations of up .2% and April was revised to a gain of .3% from the initial reading of up .2%. Because auto sales fell by 2.9%, the headline sales figure was down .2% vs expectations of down .5%. Taking out the also volatile building materials category (which was up 1.2%), had sales up .2% and are now up 5.7% y/o/y. Clothing sales rose a modest .2% after a .1% gain in April. On line retailing saw a good gain of 1.2% and are up 19.7% y/o/y. Department store sales fell by .7%. Bottom line, while a focus because the data was a touch better than expected, we’ve already seen May retail comps and vehicle sales last week but in the context of good growth data in China and an oversold market condition here, a short term bounce makes sense here. The question though is what happens after the bounce.